Suppose policy makers pass a budget that results in a reduction in the budget deficit. Also assume that this fiscal policy action results in an increase in the saving rate. To what extent will this increase in the saving rate cause permanent changes in the rate of growth of output per worker? Explain
What will be an ideal response?
A budget that causes a reduction in the budget deficit will cause an increase in the saving rate. Increases in the saving rate will only temporarily affect the growth rates of Y and Y/N. Once the new balanced growth equilibrium is achieved, the growth rates of Y and Y/N will return to their original levels.
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If the long-run aggregate supply curve is vertical
A) the short-run Phillips curve must be vertical. B) the economy stays at the natural rate of inflation in the long run. C) the trade-off between unemployment and inflation cannot be permanent. D) unemployment and inflation are positively related in the long run.
Which of the following is not a correct statement about money? a. Money serves as a medium of exchange
b. The value of money generally fluctuates much more than the prices of individual commodities like oil or wheat. c. Money serves as a store of value. d. Money serves as a means of deferred payment.