Three candidates for political office disagree over the benefits of enlarging the federal budget deficit. Candidate X says the stimulation package is needed to increase employment and real GDP; Candidate Y says it will only cause higher prices; and Candidate Z says it will have no effect on either real GDP or the price level. How do the three candidates differ with respect to the condition of the economy and the effects of fiscal policy?
A. Candidate X thinks the economy is below the full-employment real GDP and that the short-run aggregate supply curve is horizontal. Candidate Y believes the economy is at full employment. Candidate Z believes the expansionary policy will result only in direct fiscal offsets.
B. Candidate X thinks the simple Keynesian model is applicable, while Y thinks the expansionary policy will fully crowd out private investment. Z believes the economy is experiencing a recessionary gap.
C. Candidate X thinks the simple Keynesian model is applicable; Y thinks the short-run aggregate supply curve is horizontal; and Z thinks the expansionary policy will generate lower interest rates.
D. Candidate X thinks the short-run aggregate supply curve is upward sloping; Y thinks interest rates will rise; and Z thinks the economy is at full employment.
Answer: A
You might also like to view...
Suppose the government of South Island fixes the exchange rate of its currency, the Islandia, in terms of the U.S. dollar. Initially the exchange rate is set at $1 per Islandia. In a crisis, the government changes the exchange rate to $0.50 per Islandia. This is an example of a(n):
A. devaluation B. revaluation C. depreciation D. appreciation
When new firms are encouraged to enter a monopolistically competitive market
A) some existing firms must be earning economic profits. B) the demand curve facing an existing firm shifts to the right. C) they do so because there is insufficient product differentiation. D) the marginal cost curve facing an existing firm shifts downwards.
Policy makers should manage aggregate demand so that it grows in line with the economy's capacity to produce. This task is the realm of
a. growth policy. b. stabilization policy. c. labor policy. d. inflation policy.
Exclusive ownership of a key resource
a. is the most common cause of a monopoly. b. is a potential but rare cause of a monopoly. c. explains the monopoly ownership of the US Postal Service. d. explains why a single firm distributes water to a community.