Another problem is that too much government spending
What will be an ideal response?
may lead to inflation. The goal of expansionary fiscal policy is to expand the economic activity to its full-employment level. But what if fiscal policy overshoots this level? It is easy to see how this might occur. For politicians, government spending on popular programs is easy but raising taxes to pay for them is hard. This can lead to budget deficits (discussed in Section 2), but it can also cause excessive aggregate demand in the economy. Excessive demand could also, in theory, arise from high consumer or business spending, but usually government spending, alone or in combination with high consumer and business expenditures, is partly to blame when the economy "overheats." The result is likely to be inflation
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In what way is consumer demand different from consumer wants?
a. Demand is only for necessities. b. Demand is only for luxuries. c. Demand takes into account the ability to pay. d. Consumer wants are only for luxuries. e. Consumer wants are only for necessities.
Because it is based on the demand for products, the demand for labor is called
a. a substitution demand b. a complementary demand c. an income demand d. a derived demand e. a marginal demand
Which of the following increase when the Fed makes open market purchases?
a. currency and reserves b. currency but not reserves c. reserves but not currency d. neither currency nor reserves
Assume a DVC has a real per capita output of $1,000 as compared to $20,000 for an IAC. If both nations realize a 4 percent growth of their real per capita outputs, after one year the absolute real per capita output gap will:
A. remain unchanged at $19,000. B. increase by $760. C. decrease by $1,000. D. increase by $19,760.