Explain how an increased federal budget deficit resulting from a recession can actually help stabilize an economy
What will be an ideal response?
Help in stabilizing the economy can come through three different channels: transfer payments, household incomes, and corporate taxes. Transfer payments increase during a recession, and these transfer payments increase the income of their recipients. In doing so, they partly offset the fall in household income which results from recessions and slows the decline in consumer spending. Households whose incomes are falling due to a recession pay less in taxes, which partly offsets the income decline and slows the decline in consumer spending. The corporate tax depends on corporate profits, and since profits fall in a recession, corporate taxes also fall. Lower corporate taxes enable businesses to reduce the spending cuts they would otherwise face during a recession.
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Increasing a tariff will ________ the domestic quantity consumed of the good, while ________ the domestic production of the good
A) increase; increasing B) increase; decreasing C) decrease; increasing D) decrease; decreasing
When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to
A) the deadweight loss effect. B) the elasticity effect. C) the income effect. D) the substitution effect.
All of the following are possible ways to avoid price wars EXCEPT:
a. customer segmentation with revenue management b. growing the market c. reference prices and framing effects d. to not start one e. a through c f. a through d Indicate whether the statement is true or false
Under perfect competition, if an industry is characterized by positive economic profits in the short run:
a. firms will leave the market in the long run and the short-run supply curve will shift outward. b. firms will enter the market in the long run and the short-run supply curve will shift outward. c. firms will enter the market in the long run and the short-run supply curve will shift inward. d. firms will leave the market in the long run and the short-run supply curve will shift inward.