Explain some of the steps that a government would wish to adopt in an inflationary environment
In the case of an inflationary gap, real GDP exceeds potential GDP. In such a case, government would wish to adopt more restrictive fiscal policies to reduce aggregate demand. If an inflationary gap would arise from a continuation of current budget policies, contractionary fiscal policy tools can eliminate it. By cutting spending, raising taxes, or by some combination of the two, the government can pull the C + G + I + (X ? IM) schedule down to a noninflationary position and achieve an equilibrium at full employment.
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In the expression for present value of benefits (PVB), ?(bt/[1+rs]t), with bt= Bt/(1 + p)t,
a. bt represents incremental nominal benefits b. Bt represents incremental real benefits c. bt represents incremental real benefits d. p stands for the opportunity cost of money
Starting from long-run equilibrium, a large decrease in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; lower; potential B. expansionary; higher; potential C. recessionary; lower; potential D. recessionary; lower; lower
Which of the following is most likely the most beneficial form of monopoly advantage?
A) better production methods B) input hoarding C) decreasing returns to scale D) government protection
If the actual price level is less than the expected price level reflected in long-term contracts, _____
a. firms will find production more profitable in the short run than they had expected and will decrease the quantity of output supplied b. firms will find production less profitable in the short run than they had expected and will decrease the quantity of output supplied c. firms will find production more profitable in the short run than they had expected and will increase the quantity of output supplied d. resource owners will earn higher returns in the short run than they had expected and will decrease the quantity of resources supplied e. unemployment will increase in the short run as firms will substitute labor with capital inputs