Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?
What will be an ideal response?
No, expansionary fiscal policy does not directly increase the money supply. The president and the Congress fight recessions by increasing spending, not the money supply, by either increasing government spending or cutting taxes to increase household disposable income and, therefore, consumption spending.
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The total expenditure on goods and services in a country must be the same as the total income earned from selling goods and services because:
a. the government's annual budget has to balance. b. net exports in an economy is usually zero. c. one sector's expenditures are another sector's income. d. total investment in an economy always equals total saving. e. the sum of consumption spending and saving is zero.
Exhibit 4-2 Supply and demand curves
In Exhibit 4-2, a decrease in quantity demanded would cause a movement from which equilibrium point to another, other things being equal?
A. E1 to E2. B. E1 to E3. C. E4 to E1. D. E3 to E4.
Applied to perfectly competitive labor markets, the marginal principle tells firms to hire workers until:
A. the marginal revenue product of the last worker hired equals the wage. B. marginal productivity begins to diminish. C. average total costs are minimized. D. the price of the product equals the wage of the worker.
Which of the following statements would Milton Friedman agree with concerning the conduct of monetary policy?
A. Information lags are short, enabling the central bank to respond quickly to changes in the economy. B. Wage and price adjustments are relatively slow, so changing the money supply will have a minimal impact on the real economy. C. There is little uncertainty over the effect of a change in the money supply on the economy. D. There are long and variable lags between monetary policy actions and their economic results.