Discretionary fiscal policy
A. would have a larger effect on real GDP if the multiplier was smaller.
B. may not have desired effects on real GDP because it leads to increases in aggregate demand.
C. may not have desired effects on real GDP because of the time lags.
D. may not have desired effects on real GDP because it leads to decreases in aggregate demand.
Answer: C
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Assume that the full-employment level of output is $1,000 and the price level associated with full-employment output is 100. Also assume that the economy's current level of output is $1,100 and at the price level of 100 current aggregate demand is $1,200. If the government moves the economy back to the full-employment level of output by increasing taxes by $50, then the expenditures multiplier equals
A. 2. B. 10. C. 5. D. 4.
The recognition time lag recognizes that it takes time
A) to collect information about the state of the economy. B) for any change in policy to take effect and for people to recognize that the policies are effective. C) to get politicians to agree on the best policy to enact. D) for the politicians to enact the policy once the need for change has been recognized.
In the above figure, if the real interest rate is 6 percent, the quantity of loanable funds demanded is
A) $150 billion. B) $300 billion. C) $450 billion. D) $600 billion.
When demand is inelastic and price decreases:
A) the effect of the decrease in price on total revenue dominates the effect of the increase in quantity demanded on total revenue; overall total revenue declines. B) the effect of the increase in quantity demanded on total revenue dominates the effect of the decrease in price on total revenue; overall total revenue increases. C) the effects of the decrease in price on total revenue and the corresponding increase in quantity demanded on total revenue perfectly offset one another; overall total revenue remains unchanged. D) quantity demanded and total revenue fall to zero.