Which of the following fiscal policy changes would be the most contractionary?
A. A $40 billion increase in taxes
B. A $20 billion increase in taxes and a $20 billion cut in government purchases
C. A $30 billion increase in taxes and a $10 billion cut in government purchases
D. A $10 billion increase in taxes and a $30 billion cut in government purchases
Answer: D
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Suppose that after five solid years of economic growth, Eurekaland begins to experience inflationary pressures due to strong consumer and investor confidence. If Eurekaland's Central Bank wants to prevent inflation from becoming a major problem, which of the following actions should it take?
A) It should reduce the money supply to push interest rates higher. B) It should increase the money supply to push interest rates higher. C) It should reduce the money supply to push interest rates lower. D) It should increase the money supply to push interest rates lower.
A higher rate of saving at the national level will, in the long-run ________
A) cause a decrease in levels of capital and output B) have no effect on levels of capital and output C) lead to an increase in population growth D) cause an increase in levels of capital and output