Subsidizing firms that pollute will reduce pollution in the long run.

Assume the price of capital falls relative to the price of labor and, as a result, the demand for labor increases. Therefore:

A. capital is very highly substitutable for labor. B. the output effect is greater than the substitution effect. C. the income effect is greater than the output effect. D. the substitution effect is greater than the output effect.

A government budget surplus may enable all of the following except

A. A decrease in the money supply. B. A decrease in taxes. C. An increase in income transfers. D. An increase in expenditures on goods and services.