1) Suppose the government increases spending to fund tuition assistance for qualified college students. Which of...

1) Suppose the government increases spending to fund tuition assistance for qualified college students. Which of the following is likely to result?

A) Automatic stabilizers will increase the concretionary impact of the decrease in aggregate demand.

B) Automatic stabilizers will decrease the contractionary impact of the increase in aggregate demand

C) Automatic stabilizers will increase the expansionary impact of the increase in aggregate demand

D) Automatic stabilizers will decrease the expansionary impact of the increase in aggregate demand

2) In the long run, wages and prices are considered to be:

A) sticky

B) Constant

C) flexible

D) Irrelevant

Solutions

Expert Solution

Q1
Answer
Option C
C) Automatic stabilizers will increase the expansionary impact of the increase in aggregate demand

Automatic stabilizers are effective policies at any time in the economy and work in the opposite fo the business cycles or the opposite of AD change.
Ex. taxes and social security payments
When an economy contracts the income decreases and unemployment increases so the taxes decreases and spending increases.
Fiscal policy uses taxes and spending to control the economy. Expansionary policy is used to stimulate the economy when the economy is in a recession or its contracts. The expansionary fiscal policy increases government spending and decreases taxes as the automatic stabilizers do
So the policy is an expansionary policy and the automatic stabilizer decreases the effect of it.
=======
Q2
Answer
Option C
Flexible
The long-run is a period where all the inputs are variable and the changes are possible in the long run so these are flexible in the long run and sticky in the short run.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Suppose a university significantly increases tuition. Which group of students would have a greater elasticity of...

Suppose a university significantly increases tuition. Which group of students would have a greater elasticity of demand for acquiring their degree from this particular institution; students just entering their first semester of college or students approaching graduation? You must use the concept of elasticity to explain your answer. Explain your answer with appropriate detail. Providing a substantive response of not less than 75 words. Applying economic concepts when applicable.

suppose the government increases spending on highway construction by $5 billion. Which way does the AD...

suppose the government increases spending on highway construction by $5 billion. Which way does the AD curve shift? explain why the shift might be larger than $5 billion and why the shift might be smaller than $10 billion.

1. Using AD and AS model, graphically explain the following: Suppose that the Government increases spending...

1. Using AD and AS model, graphically explain the following: Suppose that the Government increases spending and simultaneously raises taxes. a) Show the effect of this change on AD schedule. b) How does this affect output and price level in the Keynesian case. c) How does this affect output and price level in Classical case.

A temporary government spending shock. a) Suppose the government very temporarily, and unexpectedly, increases its purchases...

A temporary government spending shock. a) Suppose the government very temporarily, and unexpectedly, increases its purchases of goods. (Assume the government finances these temporary purchases by issuing additional debt. Assume the government only purchases goods—it does not produce goods, or employ labor directly.) Explain the impact in both the goods and labor markets today. What happens to consumption demand, investment demand, aggregate demand, and aggregate supply? What happens to the market-clearing real interest rate, output, consumption and investment? Illustrate graphically....

Question 3: Suppose federal government decreases taxes by (ΔT= 10 million) and increases government spending by...

Question 3: Suppose federal government decreases taxes by (ΔT= 10 million) and increases government spending by (ΔG = 20 million), as a result output is changed by (ΔY). a. (10 points) Assuming that the Federal reserve changes money supply such that the interest rate stays constant and marginal propensity to consume is MPC= 0.6. What is the change in output (ΔY)? What is ΔY ? What is ΔY? Show your work. ΔT ΔG b. (10 points) If the fed does...

Suppose government spending increases. Would the effect on aggregate demand be larger if the Federal Reserve...

Suppose government spending increases. Would the effect on aggregate demand be larger if the Federal Reserve held the money supply constant in response or if the Fed were committed to maintaining a fixed interest rate? Explain.

The economy is in a recession. The government increases spending in an effort to move the...

The economy is in a recession. The government increases spending in an effort to move the economy toward full employment (Y*). Money demand is interest sensitive and investment interests insensitive. explain each step of the adjustment process, graph the process (show both “the crowing out” and the path –process– the economy will follow). How much crowding out would you expect relative to an economy wherein Money demand is interesting insensitive and investment is interest sensitive and why.

2A. Using the “Keynesian Cross” logic of Chapter 11, suppose that Government spending increases by $10....

2A. Using the “Keynesian Cross” logic of Chapter 11, suppose that Government spending increases by $10. The marginal propensity to consume is 0.90. How much, overall, would incomes (Y) increase by? Explain your answer or show the equation(s) you used. B. How much would consumption spending and private (household) savings change by? HINT—In part A, you found the change in Y. Combining the change in Y with the MPC might be useful. C. Suppose now that Investment spending increased by...

1.In country A, government increases spending on building infrastructure. However, the economic growth of the country...

1.In country A, government increases spending on building infrastructure. However, the economic growth of the country remains slow. Explain why. (Don’t just say that building physical capital is not sufficient for a country to grow.) 2. In country B, political unrests always occur, and these decrease economic growth. Explain why political unrests reduce firms’ investments and human capital of country B?

1. Suppose the autonomous spending is 20, MPC is 0.75. Government spending and tax are unknown....

1. Suppose the autonomous spending is 20, MPC is 0.75. Government spending and tax are unknown. Investment is following the function: I(r) = 200 - 50r. If the Government want to close the output gap of -30 by changing tax. Suppose Fed's monetary policy is fixing the real interest rate at 2%, thus the LM curve is horizontal. What is the change in tax the government should aim at? 2. Suppose the production function of a close economy is F(K,...

Subjects