The case for a "hands off" economic policy is based on the widely held belief that
A. Fiscal policy works but monetary policy does not.
B. Discretionary policy can improve the economy in theory but is often impractical in practice.
C. Monetary policy works but fiscal policy does not.
D. Economic theory is inadequate to formulate effective discretionary policy.
Answer: B
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According to traditional Keynesian analysis, if the economy is in a recession, the government can move it back towards full employment by
a. cutting taxes and increasing expenditures. The effect of the tax cut is larger. b. cutting taxes and increasing expenditures. The effect of the tax cut is smaller. c. raising taxes and decreasing expenditures. The effect of the tax increase is larger. d. raising taxes and decreasing expenditures. The effect of the tax increase is smaller.
Relative to private firms, we should expect public bureaus to be
a. smaller b. more cost-efficient c. less responsive to consumer demand d. more concerned with adopting new technologies e. more in tune with consumer desires