QUESTION 1

In countries where government budget is determined by the representatives of various interest groups in the cabinet or in the legislature, fiscal policy may suffer from the "tragedy of the commons" because

a.the budget needs to be approved in the House of Commons.

b.the representatives of interest groups work against the interests of common people.

c.the individual representatives have an incentive to vote for excess expenditures and tax cuts that benefit their constituencies at the cost of the economy as a whole.

d.the individual representatives have an incentive to vote for expenditure reductions and tax increases that hurt everyone in the economy.

QUESTION 2

When the COVID-19 pandemic hit the U.S. population in 2020, the economy entered a very deep recession that had to be countered by major fiscal and monetary policy responses. Which one of the following frameworks would have offered an optimal macroeconomic policy to follow in that situation?

a.Balanced budget laws.

b.Fiscal golden rule.

c.Constant growth rate rule for money supply.

d.Currency board with a fixed exchange rate.

e.None of the above.