Would a law that required the federal government to balance the budget on an annual basis contribute to more or less stability in the economy? Why?
What will be an ideal response?
If the government is never allowed to run a deficit, the budget would become a destabilizing influence. For example, as the economy slips into a recession and income falls, tax revenues would decline. The drop in tax revenues would then require a cut in government spending or an increase in tax rates. Either of these two options would accelerate the decline in aggregate expenditure and worsen the contraction. Alternatively, during inflationary times, rising tax revenues would require the government to raise spending or cut tax rates—thus further increasing aggregate expenditure and fueling inflation.
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Checking deposits at banks are
A) money. B) not money because they are an intangible. C) money only because they are insured by the FDIC. D) not money until they are converted into currency.
Comment on the following statement. "Monopolistically competitive firms will still produce in the short run even if the demand curve is below their average variable cost curve because the firms still maintain a degree of market power."
What will be an ideal response?
In September of 2007, the Federal Reserve Board Open Market Committee voted to lower interest rates for the first time that year. Explain how lower interest rates affect the aggregate demand curve
What will be an ideal response?
A legal maximum on the price at which a good can be sold is called a price
a. floor. b. subsidy. c. support. d. ceiling.