Country X and Country Y are two neighboring countries which are experiencing recession. The government of Country X reduced its expenditure during the recession while Country Y's government increased the supply of money in the economy
Which of the two policies will help the economy to recover from the recession?
Aggregate demand falls during a recession. This reduces production and demand for labor leading to a sharp increase in unemployment, lowering private expenditure further. If the government also reduces its expenditure during a recession, production will fall even more leading to more job losses. On the other hand, if the central bank increases the supply of money, the aggregate price level will increase. An increase in output prices will lead to an increase in production. As a result, firms will hire more workers. Thus, the policy adopted by the government of Country Y is a better policy.
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Internal economies of scale arise when the cost per unit
A) falls as the average firm grows larger. B) rises as the industry grows larger. C) falls as the industry grows larger. D) rises as the average firm grows larger. E) remains constant over a broad range of output.
Assume there is a reduction in the shipments of petroleum products due to political tension in the Persian Gulf. Which of the following would not be expected to happen?
A) Oil companies would "ration" their supplies of gasoline by raising price. B) There would be a shortage of the original equilibrium price. C) Quantity demanded would decrease. D) The demand curve would shift to the left.