Define the balanced budget multiplier and explain how it works. In your answer, ignore any supply-side effects
What will be an ideal response?
The balanced budget multiplier indicates the effect on aggregate demand of a simultaneous change in government expenditure and taxes that leaves the budget balance unchanged. Suppose the government increases its expenditure and taxes by the same amount. The tax increase decreases aggregate demand but the increase in expenditure increases aggregate demand. The increase in aggregate demand from the increase in government expenditure is greater than the decrease in aggregate demand from the increase in taxes. Thus, on net, aggregate demand increases and the amount of the increase is indicated by the balanced budget multiplier.
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Assume that an employer discovers that the marginal revenue product of the last two workers that he has hired is less than the wage rate that he is paying them
He is operating in a purely competitive market in both the output that he sells and the labor that he hires. What would you advise this employer to do and why?
A demand curve that is perfectly inelastic is
A. horizontal. B. vertical. C. at a 45 degree angle. D. parallel to the X-axis.
If the income effect outweighs the price effect of a wage increase, the labor-supply curve will:
A. slope downward. B. be perfectly flat. C. slope upward. D. be perfectly horizontal.
If the level of current output suddenly falls below the potential level of output, central bankers would:
A. keep the real interest rate constant and focus on only changing the nominal interest rate. B. raise the real interest rate. C. lower the real interest rate. D. attempt to shift the aggregate expenditures curve.