One potential problem with using fiscal policy to close recessionary output gaps is that:
A. sustained government deficits can be harmful to long-run economic growth.
B. it may be offset by automatic stabilizers.
C. reductions in interest rates can reduce savings and, therefore, investment.
D. decreased government spending can cause inflationary pressure to build.
Answer: A
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If the price of a movie rises 3 percent and, as a result, the quantity demanded of video rentals increases 6 percent, then the cross elasticity of demand is
A) 2. B) 1/2. C) -1/2. D) -2. E) 9.
We would expect that a fall in labor supply will have a proportionately smaller effect on the market wage rate when
A) workers can easily be replaced by capital goods. B) the product produced in the industry has very few substitutes. C) the product is produced in a perfectly competitive industry. D) labor represents a relatively small portion of total costs.