What are the political and economic limitations upon (a) fiscal policy and (b) monetary policy?
What will be an ideal response?
Political limitations on fiscal policy are the strongest because tax and spending policies are designed and ratified by Congress whose members are up for re-election every few years. Thus, it is difficult for Congress to enact cuts in spending or hikes in taxes which would be politically unpopular. Political limitations on monetary policy are less strong since the members of the Board of Governors are appointed to 14-year terms and are thus largely removed from political pressures. However, Congress does have the ultimate power to change the system and the members of the board, so they cannot be entirely oblivious to political impact of their decisions.
The economic limitations are closely related to the political, but would include the ability and willingness of the public to pay increased taxes or withstand cuts in government programs or to withstand the impact of a restrictive monetary policy. In other words, policies to fight inflation are limited by the severity of their impact on incomes and employment.
The economic limitations on expansionary policies are related to predictions about the future impact of such policies. In other words expansionary policies can over correct problems of a recession and create inflationary pressures in the future.
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Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. You may find it helpful to fill in the payoff matrix below. src="https://sciemce.com/media/4/ppg__rrr0818190951__f1q382g1.jpg" alt="" style="vertical-align: 0.0px;" height="203" width="377" />Which of the following statements is correct?
A. Mexico's dominant strategy is to abide by the agreement.
B. Mexico does not have dominant strategy.
C. Mexico's dominant strategy is to cheat on the agreement.
D. Mexico does not have a dominated strategy.
The following types of statistical inference are used throughout econometrics, with the exception of
A) confidence intervals. B) hypothesis testing. C) calibration. D) estimation.
It is possible that a firm in a perfectly competitive market earns a negative profit in the long run.
Answer the following statement true (T) or false (F)
Government spending increases by $40 billion and the equilibrium level of output increases by $200 billion. The government spending multiplier
A. is 4. B. is 5. C. is 6. D. cannot be determined from this information, because the MPC is not given.