What effect will expansionary fiscal policy have on the economy, according to new classical economists?
According the new classical theory, a tax cut financed by increased government borrowing implies higher future taxes. Taxpayers will, therefore, reduce consumption and save the tax cut to pay those higher future taxes. The government deficit will not stimulate aggregate demand, and therefore, the attempt to conduct expansionary fiscal policy will be unsuccessful.
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Consider a graph on which one good Y is on the vertical axis and the only other good X is on the horizontal axis
On this graph the income-consumption curve has a positive slope for low incomes, then it takes a zero slope for a higher income, and then it takes a negative slope for even higher incomes (the curve looks like an arc, first rising and then falling as income increases). This curve illustrates that, for all income levels, A) both X and Y are normal. B) only Y is normal. C) both X and Y are inferior. D) only X is normal.
A measure of consumer surplus in any market is
a. total expenditure on the good b. the area above the supply curve and below the price c. the area beneath the demand curve d. the area beneath the demand curve and above the price e. the market price
Which of the following is not correct?
a. The higher average return on stocks than on bonds comes at the price of higher risk. b. Risk-averse persons will take the risks involved in holding stocks if the average return is high enough to compensate for the risk. c. Insurance markets reduce risk, but not by diversification. d. Risk can be reduced by placing a large number of small bets, rather than a small number of large bets.
The Earned Income Tax Credit (EITC) is a more efficient means to redistribute income to people below the poverty line than direct cash transfers.
Answer the following statement true (T) or false (F)