Describe appropriate discretionary fiscal policy according to Keynesian economics to smooth out the business cycle
The government should increase its spending and/or reduce taxes (run a deficit), or increase government spending and taxes by the same amount to combat a recession. The government should do just the opposite to combat inflation during an economic expansion.
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Suppose the government decides that a particular commodity is a luxury and decides to fix its price above the market-determined price. What implications could this policy have?
What will be an ideal response?
With respect to Friedman's natural rate theory, expansionary monetary policies can
a. move output above the natural rate but leave unemployment at the natural rate in the short-run. b. only affect inflation and not unemployment in the long-run. c. leave output at its natural rate with a simultaneous decrease in the natural rate of employment. d. move output and employment below the natural rate.
The numerical value of a price elasticity represents the percentage amount by which the quantity demanded changes when the price
a. increases by 1 unit b. changes by 1 percent c. is in equilibrium d. is fixed in the market e. falls by 1 dollar
Geometrically, the average product
A. at any point is the slope of the total product curve at that point. B. is the slope of the line joining the origin to the specified point on the total product curve. C. is that point at which the total product curve exhibits diminishing returns. D. falls at low levels of input use and rises at high levels of input use.