Expansionary fiscal policy in response to a negative real shock:
A. will only increase real growth and inflation a little.
B. might increase inflation a little but will increase real growth a lot.
C. might increase real growth a little but will increase inflation a lot.
D. will increase both real growth and inflation a lot
Answer: C. might increase real growth a little but will increase inflation a lot.
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A country produces only apples and bananas. Moving from point A to point B along its production possibilities frontier, 5 apples are gained and 4 bananas are forgone. What is the opportunity cost of an apple?
A) 4/5 of a banana B) 5/4 of a bananas C) 4 bananas D) 1 apple E) None of the above answers is correct.
One objection to the notion of Ricardian Equivalence is that ________
A) households will recognize that a tax cut today will only lead to a tax increase in the future B) individuals are short-sighted in their spending decisions C) borrowing constraints have largely been eliminated due to financial innovation in the provisioning of consumer credit D) households typically save most of the monies received from a tax cut