1.) Explain why increasing opportunity cost is not caused by increasing inefficiency. 2.) Explain why the following statement is incorrect:
“Income and output are two entirely different things.”
3.) Explain how Keynes’ economic principles and Supply-side economics are related. 4.) How do externalities determine the extent of the involvement of government in the national economy? 5.) Support or refute the following statement: “Since business investment includes all of the transactions on the New York Stock Exchange, as the Dow Jones Industrial Average (DJIA) increases the GDP does as well.”
1. As production of a product increases, the opportunity cost rises along with it. If the production is inefficient, then by logic, production will go down as will opportunity cost. 2. Output relies on income. If you do not have income, you cannot put out, whether that be to buy products from a company, or to buy supplies to make a product. 3. Supply-side economics was an answer to the Keynesian way of thinking about economics. It was felt that there was no longer a depression, and since Keynes’ theory worked for the depression, something had to change. However, that change was the old way of thinking, which focused on price instead of income. 4. The government will get involved in different ways. For example if there is a revolutionary product that is a benefit to everyone, the government will possibly subsidies the cost. However if the product is harmful, like cigarettes, the government will place taxes on them to discourage people from buying them. 5. That statement is not necessarily true. For example if a foreign car company decides they want to build a car here and hire American workers to do it, that will have a positive impact on the GDP because it increases production in the US. However, because it is a foreign company, it is not traded within the New York Stock Exchange so it will not affect numbers at the...
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