Which of the following explains why the government should not increase spending by the entire amount of the AD shortfall to move the economy to full employment?
A. The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap.
B. The price level is constant.
C. The government can increase taxes to create an additional increase in aggregate demand.
D. Price level changes will make up for the difference between the fiscal stimulus and the AD shortfall.
Answer: A
You might also like to view...
If country A has a larger trade triangle than country B, reciprocal demand will lead to an increase in the relative price of A's imports
Indicate whether the statement is true or false
If the economy suffers a permanent negative supply shock because there is an increase in regulations that permanently reduce the level of potential output, then
A) potential output falls. B) the long-run aggregate supply curve shifts leftward. C) the short-run aggregate supply curve shifts upward. D) all of the above.
Bill's utility function takes the form U(I) = exp(I) where I is Bill's income. Based on this utility function, we can see that Bill is:
A) risk averse B) risk neutral C) risk loving D) He can exhibit two or more of these risk behaviors under this utility function.
A firm has a marginal cost of $18 and charges a price of $27. The Lerner index for this firm is:
A. 0.67. B. 0.50. C. 0.75. D. 0.33.