Mutual Independence

1.The two basic markets shown by the simple circular flow model are:

​product and resource

​free and controlled

​household and business

​capital goods and consumer goods

2. Countercyclical discretionary fiscal policy calls for:​

​surpluses during both recessions and periods of demand-pull inflation

​deficits during both recessions and periods of demand-pull inflation

​surpluses during recessions and deficits during periods of demand-pull inflation

​deficits during recessions and surpluses during periods of demand-pull inflation

3. ​Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates:

​the moral hazard problem

​the special interest effect

​the adverse selection problem

​logrolling

4. ​A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:

​the likelihood of collusion

​mutual interdependence

​product differentiation

​high entry barriers

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