Question 1: Lawns produce no crops but occupy more land (25 million acres) in the U.S. than any single crop, such as corn. This means that the United States is operating inefficiently and hence is at a point inside the production possibility curve. Right? If not, what does it mean?
Question 2: Groucho Marx is reported to have said, "The secret of success is honesty and fair dealing. If you can fake those, you've got it made." What would likely happen to society's production possibility curve if everyone could fake honesty? Why? (Hint: Remember that society's production possibility curve reflects more than just technical relationships.)
Question 3: The government has just increased taxes.
a) Demonstrate the effect on the price level and output in the standard model.
b) How would your answer to a differ if there were partial crowding out?
c) How would your answer to a differ if there were complete crowding out?
Question 4: Assume a country's nominal GDP is $600 billion, government expenditures less debt services are $145 billion, and revenue is $160 billion. The nominal debt is $360 billion. Inflation is 3 percent and interest rates are 6 percent.
a) Calculate debt service payments.
b) Calculate the nominal deficit.
c) Calculate the real deficit.
Please label answers with corresponding question.