a. At time T, what is the economy experiencing?
-
Full-employment output
-
An economic contraction
-
An economic expansion
b. In order to smooth out the business cycle, what type of fiscal policy should the government undertake?
-
Contractionary fiscal policy
-
Expansionary fiscal policy
c. What type of actions might the government take?
-
An increase in taxes and a decrease in government purchases
-
An increase in both taxes and government purchases
-
A decrease in taxes and an increase in government purchases
-
A decrease in both taxes and government purchases
Homework Answers
a) At point T the economy is experiencing a economic contraction and they are at trough. The answer is "B".
b) From point T the government should take an expansionary business cycle.
c) "C"
The government will decrease the taxes and increase the government expenditure i.e. the government purchases.
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