Which of the following individuals would most likely favor an increase in government spending, as opposed to a tax cut, as the basis for expansionary fiscal policy?
A. “There must be a constant philosophical prejudice against any intervention by the state into our lives, for by definition such intervention abridges liberty.”—William Simon
B. “The bastards [read politicians] can’t spend what they don’t have.”—Howard Jarvis
C. “The family that takes its mauve and cerise, air-conditioned, power-steered, power-braked automobile through cities that are badly paved, made hideous by litter, [and] blighted buildings...to picnic beside a polluted stream amid the stench of refuse may properly reflect on the curious unevenness of their blessings.”—J.K. Galbraith
D. “Public expenditures are made for the primary benefit of the middle class and financed with taxes on the poor and rich.”—Director’s Law
Answer: C
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The figure above shows supply curves for soft drinks. Suppose the economy is at point a. A movement to point b could be the result of
A) an increase in technology. B) a decrease in the relative price of a soft drink. C) an increase in the relative price of a soft drink. D) an increase in the money price of a soft drink.
Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of $250 per year on all restaurants that operate in the city
How does this affect Ronny's profit maximizing decisions? A) No impact on the restaurant's decisions B) Ronny's will remain in business but will definitely produce less pizza C) Ronny's will definitely shut down D) Ronny's decision depends on the circumstances -- if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down.
If an economy moves into a recession, causing that country to produce less than potential GDP, then:
a. automatic stabilizers will cause tax revenue to decrease and government spending to increase. b. automatic stabilizers will cause tax revenue to increase and government spending to decrease. c. tax revenue and government spending will be higher because of automatic stabilizers. d. tax revenue and government spending will be lower because of automatic stabilizers.