Refer to the above figure. Suppose that the economy starts at AD1. If the government reduces taxes, then the economy goes to AD2, but then falls back to AD1. This is an example of
A. the free rider problem.
B. laissez-faire.
C. complete crowding-out effect.
D. partial crowding-out effect.
Answer: C
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Starting from long-run equilibrium, a war that raises government purchases results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; potential C. higher; higher D. lower; higher
When federal government spending exceeds tax revenues, the federal government runs a budget surplus
Indicate whether the statement is true or false
All of the following would stimulate economic growth EXCEPT
A) decreasing taxes on consumption (for instance, decreasing a sales taxes) and increasing income taxes. B) subsidizing basic research. C) decreasing tuition charges at state universities. D) encouraging international trade.
An important problem with the gold standard was that
A) it was too complicated and restricted business activity. B) a country did not have control of its domestic monetary policy. C) exchange rates tended to fluctuate a great deal, making it difficult for businesses to make long-run plans. D) one country could easily manipulate the system to its advantage and the disadvantage of other countries.