Which of the Following Is a Self-Correcting Tendency in the Market

question 11

Multiple Choice

Which of the following is a self-correcting tendency in the market when an economy is in the inflation-and-deficit zone?

• A) The loss of foreign exchange reserves compels the government to impose price controls and trade controls.
• B) The macroeconomic imbalances cause international lenders to increase the interest rate on the country's external debt.
• C) Domestic inflation reduces the real exchange rate.
• D) All of the above.

Comprehend the use and impact of cost-benefit analysis in public decision making.

Identify the characteristics and challenges of managing common resources.

Understand the concept of marginal social benefit (MSB) and how it is calculated for different members in a society.

Recognize the characteristics and implications of nonexcludable goods, including the free-rider problem.

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Definitions:

Concave

A shape or curve that is curved inward, resembling the interior of a circle or sphere.

Production Possibilities Frontier

A curve depicting all maximum output possibilities for two goods, given a set of inputs and technology constraints.

Marginal Rate Of Transformation

The rate at which one good must be sacrificed in order to produce an additional unit of another good, assuming efficient use of resources.

World Price Ratio

The rate at which quantities of goods from two countries are traded for each other.