Explain why a balanced budget has an expansionary effect on the economy
A balanced budget is expansionary because equal increases in government spending and taxes do not
exactly offset each other in terms of changes in aggregate expenditure. All of the government spending is
added to aggregate expenditure, while only part of the tax change is subtracted from aggregate expenditure
in the form of lower consumption expenditure.
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Other things remaining the same, a left shift in the supply curve will lead to:
A) a decrease in the equilibrium price and the equilibrium quantity. B) an increase in the equilibrium price and the equilibrium quantity. C) a decrease in the equilibrium price and an increase in the equilibrium quantity. D) an increase in the equilibrium price and a decrease in the equilibrium quantity.
Which of the following is a problem inherent in centrally planned economies?
A) Production managers are more concerned with satisfying consumer wants than with satisfying government's orders. B) There is too little production of low-cost, high-quality goods and services. C) Exports tend to exceed imports. D) Households and firms make poor decisions in choosing how resources are allocated.