For this question, assume that equilibrium output is determined in the ZZ-Y diagram. Further assume that policy makers' goals are (1 ) to achieve balanced trade (i.e., NX = 0); and (2 ) to achieve a target level of output, say YT. Now, suppose that the initial level of equilibrium output is equal to YT (i.e., Y = YT) and that a trade deficit exists at this initial level of output. Which of the
following policy actions would most likely enable the policy makers to achieve their two goals simultaneously?
A) a reduction in government spending
B) convince the country's trading partners to pursue policies that will cause an increase in foreign income (Y)
C) a reduction in the real exchange rate
D) a reduction in taxes
E) a simultaneous increase in government spending and reduction in the real exchange rate
F) none of the above
B
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A perfectly competitive firm will maximize profits when
A) average cost is greater than marginal revenue. B) marginal cost is greater than marginal revenue. C) marginal cost is equal to marginal revenue. D) average cost is equal to average revenue.
Advocates of active stabilization policies, in defense of their views, argue that
a. stabilization is less necessary than is commonly advocated by monetarists. b. discretionary policy in not necessary because automatic stabilizers are sufficient. c. perfect stabilization is not possible, but moderate improvements in economic performance are possible, such as the response to the events of September 11, 2001. d. All of the above are correct.