A contractionary fiscal policy is a policy that:
A. reduces aggregate demand by decreasing taxes.
B. reduces aggregate demand by decreasing government purchases.
C. reduces aggregate demand by decreasing interest rates.
D. reduces aggregate demand by decreasing money supply.
Answer: B. reduces aggregate demand by decreasing government purchases.
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Shooting Star Books is a small publishing company that specializes in science fiction books. Like most publishers, Shooting Star releases new books in hardcover form and later releases paperback versions of the books
The marginal cost of printing both types of books is $2 per book, and Shooting Star maximizes profits by practicing intertemporal price discrimination. The annual demand for recently released (hardcover) books is Q1 = 400 - 10P1 where quantity demanded is measured in thousands of books and price is measured in dollars per book. The annual demand for the paperback version of previously released books is Q2 = 800 - 40P2. a. What are the marginal revenue curves associated with the two demand curves for books? b. What are the profit maximizing prices for hardcover and paperback books? What are the quantities of books demanded at these prices for hardcover and paperback books? c. Suppose the market demand for paperback books shifts to Q2 = 150 - 100P2. How does this change affect the profit maximizing price and quantity in the paperback book market? Does this change affect the profit maximizing outcome in the hardcover book market?
The benefits principle of taxation can be used to argue that wealthy citizens should pay higher taxes than poorer ones on the basis that
a. police services are more frequently used in poor neighborhoods. b. the wealthy benefit more from services provided by government than the poor. c. the poor are more active in political processes. d. the poor receive welfare payments.