The rationing mechanisms that develop under binding price ceilings are usually inefficient

The traditional Keynesian approach to fiscal policy assumes that

A) an equal income distribution ensures a stable economy. B) consumers spend more when their incomes are higher. C) cutting taxes is a more effective way to stimulate the economy than is increasing government spending. D) the effect of unemployment compensation is to destabilize the economy.

If the Federal Reserve announces that its target for the federal funds rate is falling from 3 percent to 2.25 percent, how do you expect workers and firms to react?

A) As long as the Fed's announcement is credible, workers and firms will increase their consumption and investment spending, which will increase aggregate demand and inflation. B) As long as the Fed's announcement is credible, workers and firms will decrease their consumption and investment spending, which will decrease aggregate demand and inflation. C) Workers and firms will incorporate the decrease in interest rates into their expectations of inflation, and they will expect inflation to fall as a result of Fed's policy announcement. D) If the Fed's announcement is not credible, workers and firms will not expect inflation to rise so they will increase their consumption and investment spending, which will decrease aggregate demand and increase inflation.