In theory, differences in output across economies and over time might be the result of differences in either capital input, labor input, or productivity. The evidence points clearly to productivity as a more likely and powerful source of growth differences. Which aspects of the Solow growth model help to explain why the inputs of capital […]
Why might the tax multiplier be smaller than the expenditure multiplier? Under what circumstances might the reverse be true? What will be an ideal response? ANSWER In the IS model, tax rate changes affect aggregate demand indirectly by influencing consumption. The size of the effect depends on the marginal propensity to consume, which is […]
The quantity theory assumes that a. velocity is constant. b. income is constant. c. prices are constant. d. transactions are constant. ANSWER A
Government revenue generated by the issue of currency is known as ________. A) monetizing the debt B) triage C) seignorage D) hyperinflation ANSWER C
Apply the concept of tax smoothing to the debate over tax-based versus spending-based fiscal stimulus. What will be an ideal response? ANSWER Tax smoothing implies that changing tax rates ought not to be considered as a tool for short-run economic stabilization. Fluctuations of government spending and the government budget are far less distortionary.
If the tax function is T = t0 + t1Y where t1 equals 1/3, and if the marginal propensity to consume out of disposable income is 3/4, then the change in GDP per unit change in t0 (ΔY/Δt0) will be a. − 1. b. + 1. c. − 1.5. d. − 2. e. + 1.5. […]
Many economists who accept the real business cycle explanations of economic fluctuations a. believe that the sharp rise in the relative price of imported oil was the central cause of the deep recession in the United States in the mid-1970s. b. believe that the restrictive Federal Reserve monetary policy was the central cause of the […]
Pegging the bond market in 1942–45 meant that World War II (1941–45) (a) would be financed by free-market interest-rate determination. (b) fixed high interest rates. (c) fixed low interest rates. (d) sent high interest rates floating above the peg. ANSWER (c)
What does a successful protective tariff do? (a) It forces foreign manufacturers to pay higher wages. (b) It re-enforces competition. (c) It creates an “economic rent” that goes to the competing domestic industries producing the taxed imported goods. (d) It mandates accelerated technological advance in the domestic economy. ANSWER (c)
Which of the following statements is (are) correct? In the insider/outsider model there is a. unemployment due to the real wage being set above the market clearing level. b. cyclical unemployment in response to changes in aggregate demand. c. structural unemployment in response to hysteresis. d. Both a and b e. all of the above […]
