Expansionary fiscal policy:
What will be an ideal response?
: the use of government spending, transfer payments, or tax cuts to stimulate a higher level of economic activity
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Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; potential B. recessionary; higher; potential C. recessionary; lower; lower D. expansionary; higher; higher
Some cities finance their airports with a departure tax: every person leaving the city by plane is charged a small fixed dollar amount that is used to help pay for building and running the airport. The departure tax follows the:
a. benefits-received principle. b. ability-to-pay principle. c. flat-rate taxation principle. d. public-choice principle.
Suppose the United States can produce either 15,000,000 cars or 20,000,000 bottles of wine in a year and France can produce 10,000,000 cars or 18,000,000 bottles of wine in a year. This implies that:
a. the United States has a comparative advantage in the production of wine. b. France has a comparative advantage in the production of cars c. the United States has an absolute advantage in the production of cars. d. France has an absolute advantage in the production of wine.
Suppose Carlos has a 60 percent chance of not collecting $100,000 when his rich uncle dies in 10 years. Juanita wants to buy the rights to this possible inheritance from Carlos. How much is the possible inheritance currently worth to Carlos? Assume the interest rate is 9 percent.
A. $25,345. B. $142,042. C. $94,695. D. $16,896.