2.3 Discretionary Policy
What will be an ideal response?
Sometimes, the automatic stabilization effect of government spending and taxes cannot smooth economic ups and downs as much as is needed. Relatively severe problems of recession or inflation often give rise to proposals to use an active, or discretionary fiscal policy to remedy the situation.
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Refer to Figure 16.1. A decrease in the real price of capital goods is best represented by a movement from
A) point A to point B. B) point B to point A. C) point A to point C. D) point C to point A.
In which situation are transaction costs most likely to be the lowest?
A) Rodney buys antiques; he is currently looking for an eighteenth-century table. B) Cathy is looking for someone who is willing to trade accounting services (in return) for law services. C) Rodriguez wants to buy a house with two master bedrooms. D) Melinda wants to buy a McDonald's Big Mac (she will not be asking for a special order).