Economic policy tool—contractionary fiscal policy. This is a weapon that can be used against inflation, though it would generally be unwise to use it at times of high unemployment
What will be an ideal response?
(The problem of what to do if unemployment and inflation occur at the same time—something that is not shown in our simple model—is discussed in Chapter 13.) Of course, too large a spending reduction could overshoot in a downward direction, leading to excessive unemployment and, possibly, a recession
You might also like to view...
Suppose that firms are paying their "efficiency wage" rate and AD shifts leftward. Firms that lower wages and maintain production would
A) achieve lower profits since worker efficiency would fall and total wages paid increase. B) achieve lower profits since worker efficiency would fall and wages per unit of output increase. C) achieve higher profits. D) achieve lower per unit wage costs.
What's meant by the NAIRU (Natural Rate of Unemployment)?
A. It is the full-employment unemployment rate B. It is the unemployment rate at which there is only frictional and structural unemployment C. it is the unemployment rate at which the labor market has fully adjusted D. all of the above
Hours of OperationMarginal Cost16212318424530636742
Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that Krystal's marginal benefit of staying open per hour is $18. If she is following the marginal principle, how many hours should Krystal stay open?
A. 3 hours B. 4 hours C. 6 hours D. 7 hours
Assume in a private closed economy that the equilibrium level of income is $380 and the MPS is .25. Now suppose government collects taxes of $50 and spends the entire amount. As a result:
A. the equilibrium level of real income and the price level will both remain unchanged. B. the equilibrium level of income will remain unchanged. C. the equilibrium level of income will rise to $420. D. the equilibrium level of income will rise to $430.