Question

1.  For a fiscal policy to be most effective, we must have

a. perfectly flexible wages and prices.

b. a vertical AS curve.

c. accurate information about the state of the economy.

d. a balanced government budget in each year.

e. a high marginal propensity to save.

2. Which of the following will make crowding out caused by government borrowing more severe?

a. A steep (inelastic) investment demand curve

b. A global credit market

c. Tax increases

d. A steep (inelastic) supply curve in the loanable funds market

e. None of the above

3. Government spending policies can be developed to work against the problems of unemployment and inflation because government spending can

a. decrease aggregate demand to combat unemployment and increase aggregate demand to combat inflation.

b. increase aggregate supply to combat unemployment and decrease aggregate demand to combat inflation.

c. increase aggregate supply to combat unemployment and decrease aggregate supply to combat inflation.

d. increase aggregate demand to combat unemployment and increase aggregate demand to combat inflation.

e. increase aggregate demand to combat unemployment and decrease aggregate demand to combat inflation.