Multiple choice questions answers

QUESTION 6 The adverse impact of a negative aggregate demand shock is reduced when the government does not target the government deficit (e.g., by requiring the government run to a balanced budget) because targeting the deficit causes further negative aggregate demand shocks. negative aggregate demand shocks do not affect the deficit not targeting the deficit causes positive aggregate demand shocks. the economy is always producing potential output. The statement is not true. Targeting the deficit is always beneficial, especially when the economy experiences an adverse aggregate demand shock. QUESTION 7 The economist expressed concern about the prospects of short-run economic growth. "Growth in GDP leads to higher inflation - we should be mindful of this and take policy measures to curb that possibility." The economist links short-run growth to either an increase in aggregate demand or an increase in aggregate supply. short-run growth to an increase in people's willingness to work. O short-run growth with a decrease in aggregate demand. short-run economic growth with an increase in aggregate demand O short-run growth with an increase in aggregate supply. QUESTION 8 The ability of the government to stimulate the economy by fiscal spending (increase in G) is limited O if there is a large pool of discouraged workers no longer in the labor force. if wages are fixed above the market -clearing wage, or are sluggish to adjust to changes in the labor market, since people will only want to work more if they are paid more money. O if there is a large pool of unemployed workers. people perceive that the increase in government spending represents a future tax liability and decide to save more now. if the government restricts its spending to domestically produced goods only, rather than goods produced here and abroad