The government wants to increase its spending to stimulate the economy. Taking into account direct expenditure offset effects, what is its best spending option?
A. a new fighter jet for the military
B. providing textbooks for college students
C. constructing more low income housing
D. expanding the school lunch program
Answer: A
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Based on the figure below. Starting from long-run equilibrium at point C, a tax cut that increases aggregate demand from AD to AD1 will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies. 
A. D; C B. B; C C. B; A D. D; B
What could explain why South Korea's gross domestic product (GDP) per capita increased so much faster since the 1970s than North Korea's GDP per capita?
What will be an ideal response?
Do the real effects of aggregate demand shocks differ in the short run and long run in the Keynesian sticky-price model from the effects of these shocks in the classical model of perfectly flexible prices? Briefly explain
What will be an ideal response?
Compared to an economy's self-correcting mechanism, active contractionary fiscal policy will
a. work more slowly and calmly. b. work more quickly. c. have less deflationary effects. d. have a smaller effect on real GDP.