Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion. To move the economy back to potential GDP, Congress should
A) lower government purchases by $200 billion.
B) raise taxes by $200 billion.
C) lower government purchases by an amount less than $200 billion.
D) lower taxes by $200 billion.
E) raise taxes by an amount more than $200 billion.
C
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An upward shift in the consumption function, other things being equal, could be caused by households:
A. becoming optimistic about the state of the economy. B. becoming pessimistic about the state of the economy. C. expecting future income and wealth to decline. D. experiencing a tax increase.
When a firm minimizes its losses in the short run,
A. It continues to produce only if price exceeds average variable cost. B. The firm enters or exits from the market. C. It continues to produce only if price exceeds marginal revenue. D. The firm makes an investment decision.