?Assume the economy is in short-run equilibrium at a real GDP above its potential real GDP. According to classical theory, which of the following policies should be followed?
A. ?The Federal Reserve should use open market operations and buy U.S. government securities.
B. ?The Federal Reserve should not follow a fixed rule.
C. ?The federal government should cut taxes.
D. ?Fiscal policy and monetary policy should not be activist.
Answer: D
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To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A. not change. B. increase. C. decrease. D. either increase or decrease depending on the relative shifts of AD and AS.
How are automatic stabilizers different from discretionary fiscal policies?
Harry's employer offers a "Holiday Account," which means they will take $50 a month out of Harry's paycheck and deposit it into this account throughout the year. In December, they give Harry the money in the account to spend during the holidays. Harry regularly carries about $200 of credit card debt each month. Harry's decision to set aside some of his money in this account is an example of:
A. recognizing that money is fungible. B. ignoring the fungibility of money. C. needing to categorize expenditures to make rational decisions about money. D. being rational.
A tariff, unlike a __________, provides revenues to the government.
Fill in the blank(s) with the appropriate word(s).