Explain how a “conservative” and a “liberal” might differ in the types of policies they advocate to counteract a recessionary gap.
What will be an ideal response?
Conservatives tend to want a smaller government sector. In such a case, expansionary fiscal policy would take the form of tax cuts. This would diminish the size of the government’s share of total income. The aggregate demand curve would shift outward due to an increase in private spending, namely consumers and businesses. Liberals usually tend to favor an expanded government sector. In such a case, expansionary fiscal policy would call for an increase in government spending. This increase in the government’s share of the economy would shift the aggregate demand curve outward by increasing the production of public goods and services, such as education or public health care.
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Models that focus on factors other than changes in the money supply to explain fluctuations in real GDP are called
A) rational expectations models. B) real business cycle models. C) nonmonetary business cycle models. D) short-run macroeconomic models.
Suppose a dangerous workplace is made safer through the installation of guards and other equipment that reduce the physical hazards of the work environment. If we observe no reduction in injuries, we might conclude that
A) the safety equipment isn't adequate and better equipment should be installed. B) the firm has responded by lowering wages and hiring less capable people who are more likely to be injured. C) the injury rate before installation of the safety equipment had been underreported. D) workers responded to the safer environment by not exercising as much care themselves, generating more injuries than if they had not changed their behavior.