If the current level of GDP is below full employment, the level of GDP can be raised by:
A. increasing the money supply.
B. raising taxes.
C. reducing government spending.
D. raising the interest rates.
Answer: A
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Suppose the market for guitars "clears" at a price of $500 per guitar. What does the above statement mean?
A) Nothing, if an economist made the statement. B) Guitars are no longer a scarce good. C) The plans of guitar buyers and sellers are coordinated. D) There is no longer a demand for guitars.
Someone who owns stock in a drug company that suddenly and unexpectedly reveals it has found an effective vaccine against AIDS will make a profit on the stock
A) at once. B) only if she hangs on to the stock for a number of years. C) only if she sells the stock. D) only when the dividends actually start to increase. E) when total revenue exceeds all costs, including research and development costs.
A recessionary gap exists when the equilibrium level of GDP
a. falls short of potential GDP. b. equals potential GDP. c. exceeds potential GDP. d. causes inventory levels to fall.
If the government allowed a free market for transplant organs such as kidneys to exist, the
a. shortage of organs would be eliminated, and there would be no surplus of organs. b. shortage of organs would be eliminated, but a surplus of organs would develop. c. shortage of organs would persist. d. overall well-being of society would remain unchanged.