What happens to aggregate demand when government spending and the taxes to pay for it both rise by the same amount?
A. There is no effect.
B. Aggregate demand rises by the amount of the government spending times the multiplier.
C. Aggregate demand rises by the amount of the government spending.
D. Aggregate demand falls by the amount of the government spending.
Answer: C
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If the economy starts in long-run equilibrium, a permanent fiscal expansion will cause
A) an increase in exchange rate, E. B) a decrease in exchange rate, E. C) an increase in output, Y. D) a decrease in output, Y. E) shifting of the AA curve up and to the right.
The goal of endogenous growth theory is to explain ________
A) supply and demand in individual markets B) the causes of technological advance C) the business cycle D) the relationship between economic growth and the rates of inflation and unemployment
What do Keynesians mean when they say that "you can't push on a string"?
A) An increase in the supply of goods does not really create its own demand. B) If the government reduces taxes in an attempt to increase household consumption, it will not always work. C) An increase in the money supply will not always stimulate the economy. D) If the government wants to get something done, the best way is not to force the issue, but to offer incentives. E) If the government puts too much expansionary pressure on the economy, it will probably "overheat."
If interest rates are raised
A. people are not affected by interest rates being raised: only when interest rates are lowered. B. entrepreneurs are more likely to expand a business by borrowing money. C. people are less likely to save their money in banks. D. entrepreneurs are less likely to borrow money and expand their businesses.