For this question, assume that Ricardian Equivalence proposition does not hold. Briefly discuss the short-run, medium-run and long-run effects of a fiscal expansion (e.g. tax cut)
What will be an ideal response?
Answers could be quite long. In the short run, fiscal policy can affect the level of output, the composition of output, the price level, and financial market variables. In the medium run, changes in fiscal policy will not affect the level of output; however, they will affect the composition of GDP and financial market variables. So, a fiscal expansion would have no effect on output in the medium run. In the long run, fiscal policy will affect output. It will do so by affecting the level of national saving.
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Currency unions are rare because
A) they're to no one's advantage. B) countries are reluctant to give up having their own currencies. C) having flexible exchange rates has the same benefits and none of the costs. D) speculative attacks are likely to occur.
In a closed economy, the total quantity of goods demanded equals the sum of
A) consumption spending, investment spending, and government spending. B) consumption spending, national saving, and taxes. C) consumption spending, government spending, and taxes. D) investment spending, national saving, and taxes.