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1. The effect of the financial crisis of 2008–2009 on the real economy in the United...

1.

The effect of the financial crisis of 2008–2009 on the real economy in the United States was a(n) _____ in aggregate demand, a(n) _____ in output, and a(n) _________ in the unemployment rate.
  
decrease; decrease; increase
decrease; decrease; decrease
decrease; increase; increase
increase; increase; increase

2.

If the government balances its primary deficit every period
I: the national debt will stay constant forever.
II: the debt-to-GDP ratio will fall to zero as long as nominal GDP growth is positive.

II is true; I is not.
I is true; II is not.
Neither I nor II is true.
Both I and II are true.

3.

The Dutch Disease refers to a situation in which
I: manufacturing firms contract when resource-sector firms expand.
II: the international value of the domestic currency is rising.

Neither I nor II is true.
II is true; I is not.
Both I and II are true.
I is true; II is not.

4.

Assume that nobody cares about the economic well-being of future generations. The Ricardian equivalence view of the effect of debt-financed tax cuts is therefore:
totally invalid.
still fully valid as long as the government cuts spending also.
still fully valid, because the government has the option to levy taxes to pay off the full debt in just a few years.
still partially valid, because most of the taxpayers will live and pay taxes for a substantial number of years after the tax cut.

5.

According to the traditional view concerning government debt (as in the IS–LM model), if taxes are cut without cutting government spending, then in the short run, interest rates will ______ and investment will ______.
increase; decrease
increase; increase
decrease; increase
decrease; decrease

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Answer #1

Sol : 1

option (a) is correct (decrease, decrease and increase)

as, financial crisis bought a recession in 2008 - 09 . So , in recession :

  • Aggregate demand = Decreases
  • Output level = decreases
  • Unemployment = increases

(note : as per the policy we have to solve only 1 question per post. So , for remaining question, create a separate post. )

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