Which of the following statements is true about fiscal policy lags?
A) Automatic stabilizers have a much shorter impact lag than discretionary fiscal policy.
B) Although the recognition lag is equally long for discretionary fiscal policy and for automatic
stabilizers, the latter avoid implementation lag because automatic stabilizers are triggered automatically.
C) Unlike discretionary fiscal policy, automatic stabilizers respond automatically to changes in the economy, thus avoiding the recognition and implementation lags.
D) Although automatic stabilizers have a much shorter lag, discretionary fiscal policy instruments have a more potent impact on the economy because they are more precise.
Ans: C) Unlike discretionary fiscal policy, automatic stabilizers respond automatically to changes in the economy, thus avoiding the recognition and implementation lags.
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Assume that the central bank increases the reserve requirement. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative). b. There is not enough information to determine what happens to these two macroeconomic variables. c. The real risk-free interest rate and net nonreserve-related international borrowing/lending remain the same. d. The real risk-free interest rate rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive). e. The real risk-free interest rate falls, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
Refer to the information provided in Figure 12.4 below to answer the question(s) that follow.
Figure 12.4There are two sectors in the economy, X and Y, and both are in long-run, zero-profit equilibrium at the intersections of S0 and D0.Refer to Figure 12.4. Currently in sector X, price is
A. equal to average cost. B. greater than average cost. C. less than average cost. D. More information is needed to answer the question.