Question

In: Economics

1. Which of the following statements is true? A. Positive externalities lead to over production in...

1. Which of the following statements is true?

A. Positive externalities lead to over production in the free market

B. The government may subsidize merit goods to increase social welfare

C. Public goods would be provided but expensive in the free market

D. The free market system maximizes consumer surplus

2. What does a deadweight social burden triangle mean?

A. Community surplus is maximized

B. Community surplus is minimized

C. The social marginal cost of the present output is greater than the social marginal benefit

D. The price of the product is minimized

3. Which of the following is not an injection into an economy?

A. Investment

B. Government spending

C. Export spending

D. Spending on imports

4. Equilibrium in an economy occurs when:

A. Planned savings equals planned taxation

B. Planned injections equals planned withdrawals

C. Planned investment is greater than planned savings

D. Injections plus withdrawals equals national income

5. The multiplier will be biggest when the marginal propensity to consume is:

A. 0.1

B. 0.2

C. 0.3

D. 0.4

Solutions

Expert Solution

1. B. The government may subsidize merit goods to increase social welfare
Reason - Merit goods are those goods that provide positive externalities and by subsidizing such goods, government can increase the social welfare as when such goods are consumed, there will be a positive spill over and the society will benefit as a whole.

2. C. The social marginal cost of the present output is greater than the social marginal benefit
Reason - Deadweight loss refers to the cost that the society has to bear which is created due to market inefficiency. In this case, the social marginal cost exceeds the social marginal benefits.

3. D. Spending on Inports
Reason - Injection takes place when money is flowing into an economy. Whereas spending on imports will drive the money outside the domestic country to a foreign country, causing a leakage.

4. B. Planned injections equals planned withdrawals
Reason - Injection takes place when money is flowing into an economy (such as government spendings, exports, etc), withdrawals take place when money is taken out (such as savings, imports, etc). When the planned injections and planned withdrawals equate each other, there will be an equilibrium.

5. D. 0.4
Reason- The formula to calculate multiplier is 1/(1-MPC). Inserting the values in this formula, 0.4 gives the highest multiplier which is 1.667

Rahul Sunny answered 1 year ago

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