Why is the government budget constraint different between the short run and the long run?
What will be an ideal response?
In the short run, the government budget constraint consists of tax revenues and borrowing. However, a government cannot borrow indefinitely so that, in the long run, its budget constant consists of only tax revenues.
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Which of the following is NOT an assumption of the classical model?
A) Wages and prices are flexible. B) People are motivated by self-interest. C) Money illusion exists. D) Pure competition exists.
If households expect prices of consumer goods to decline, this will:
A. increase the quantity of real domestic output demanded. B. decrease aggregate demand. C. decrease the quantity of real domestic output demanded. D. increase aggregate demand.
Spot checks are typically a solution to the:
A. manager-worker, principal-agent problem. B. manager-consumer, principal-agent problem. C. consumer-worker, principal-agent problem. D. None of the statements is correct.
Suppose the Fed purchases $5,000 in U.S. government securities from the Last National Bank and the Last National Bank's account at the Federal Reserve district bank increases by $5,000 . Which of the following is a result of this transaction? a. The Last National Bank's balance sheet shows a change in the composition of its assets. b. Both the Last National Bank's assets and its liabilities
rise by $5,000. c. Both the Fed's assets and its liabilities fall by $5,000. d. Only the Fed's liabilities change, while its assets remain unchanged. e. This transaction decreases the money supply.