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

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.
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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

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