Government failure refers to
a. a mismatch between employer incentives and firm objectives
b. the failure of government to provide an efficient quantity of public goods
c. the inability of firms to produce output efficiently
d. the overabundance of competitors with government in production
e. the under-allocation of tax revenues
B
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How does an increase in government purchases financed by an increase in the deficit affect exchange rates? Support your answer with graphs of the loanable funds market and the foreign exchange market
What will be an ideal response?
Imagine an economy that does not have international trade and is initially in equilibrium. Later the government increases the level of spending by $350 million because it received a gift from abroad. In this economy, only 65 cents of every dollar is spent, and the rest is saved. The new equilibrium level of GDP for the economy will be higher by approximately:
a. $1 billion. b. $350 million. c. $65 million. d. $227.5 million. e. $227.5 million.