Refer to the graph shown. Expansionary fiscal policy shifts the aggregate demand curve from:
A. AD0 to AD2 whether or not crowding out occurs.
B. AD0 to AD2 but then back to AD1 if crowding out occurs.
C. AD0 to AD2 but then out to AD3 if crowding out occurs.
D. AD2 to AD1 and then from AD1 to AD0 if crowding out occurs.
Answer: B
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Holding other factors constant, a technological improvement that increases the marginal product of capital will:
A. decrease national saving. B. decrease investment. C. increase investment. D. increase national saving.
What is rule of reason?
What will be an ideal response?
Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.90, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of $1,000 billion aggregate demand can restore full employment, the government should:
a. increase spending by $100 billion. b. decrease spending by $790 billion. c. increase spending by $1,000 billion. d. increase spending by $250 billion.
Which of the following is true of taxes?
A) Taxes drive a wedge between what buyers pay and what sellers receive. B) Business taxes generate government revenue without imposing a burden on consumers and households. C) Increases in taxes are the primary cause of inflation. D) Taxes increase the volume of mutually advantageous exchanges.