A simultaneous increase of government purchases by $50 billion and a tax hike of $50 billion should stimulate the economy by $50 billion.
Answer the following statement true (T) or false (F)
True
The balanced budget multiplier is equal to 1. In this case, a $50 billion increase in annual government expenditure combined with an equivalent increase in taxes increases aggregate demand by $50 billion per year. When government spending increases by $50 billion, the initial spending injection will $50 billion; the remainder of taxpayers' payments will come from savings. Accordingly, the increase in AD will be $50 billion when one uses the balanced budget multiplier.
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Consider the market for credit. When the demand for credit decreases while the supply of credit remains unchanged,
A) the interest rate will decrease and the amount of credit provided in the market will increase. B) the interest rate will increase and the amount of credit provided in the market will increase. C) the interest rate will decrease and the amount of credit provided in the market will decrease. D) the interest rate will increase and the amount of credit provided in the market will decrease.
If a monopoly engages in rent seeking,
i. its average total cost curve is lower than otherwise. ii. it might or might not make an economic profit depending on how many other competitors also are rent seeking. iii. it necessarily incurs an economic loss. A) i only B) ii only C) iii only D) i and ii E) i and iii
If more French tourists visit the Grand Canyon, what is the effect in the exchange market? a. It will increase the supply of U.S. dollars
b. It will decrease the supply of U.S. dollars. c. It will increase the demand for U.S. dollars. d. It will decrease the demand for U.S. dollars.
The ratchet effect means that:
A. when aggregate demand increases, the price level remains constant. B. when aggregate supply decreases, the price level increases. C. when aggregate supply increases, the price level decreases. D. when aggregate demand decreases, the price level remains constant.