With the economy booming, the government starts to worry about the increasing rate of inflation, and decides to cut its spending on highway maintenance and defer it to sometime in the future. This is an example of:
A. discretionary fiscal policy.
B. expansionary fiscal policy.
C. an automatic stabilizer.
D. None of these is true.
Answer: A
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Starting from long-run equilibrium, an increase in autonomous consumption results in ________ output in the short run and ________ output in the long run.
A. higher; higher B. higher; potential C. lower; higher D. lower; potential
If nominal GDP rose by 10 percent and the price index increased from 100 to 105 in a given year, real GDP: a. rose by 15 percent
b. rose by roughly 9.5 percent. c. rose by 5 percent. d. fell by 5 percent.
Growth in the share of health-care expenditures covered by third parties (for example, insurance or government programs) will
a. place downward pressure on the prices of health-care services. b. reduce the incentive of suppliers to provide consumers with health-care services at a low cost. c. make consumers more sensitive to the price of health-care services. d. make it easier to control the growth of health-care expenditures.
If a firm shuts down in the short run, it will:
A. incur losses equal to its fixed costs. B. have total revenue greater than total fixed costs. C. reduce its losses to zero. D. do this because P > AVC.