Long lags make discretionary policy less effective because
a. by the time the impact of a policy is felt, the problem may have been corrected by market forces.
b. it is easier to forecast an expansion than a recession.
c. it is easier to forecast a recession than an expansion.
d. automatic stabilizers are subject to longer lags than are discretionary policies.
A
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Explain the time-inconsistency problem. What is the likely outcome of discretionary policy? What are the solutions to the time-inconsistency problem?
What will be an ideal response?
The crowding-out effect refers to the possibility that an
a. increase in the money supply will result in a decline in taxes. b. increase in consumption spending will crowd out government spending. c. increase in private savings will crowd out the taxable income of households. d. increase in government borrowing will result in higher interest rates, which will crowd out private investment and consumption.
Fixed costs of production in the short run
A. are low in proportion to variable costs in the short run. B. are a function of the level of variable costs. C. increase as the firm produces more output. D. cannot be reduced by producing less output.
An exchange rate that has an officially fixed value greater than its fundamental or market equilibrium value is called a(n) ________ exchange rate.
A. undervalued B. overvalued C. depreciated D. devalued