Why Would a Government Want to Use Expansionary Fiscal Policy

question 100

Multiple Choice

Why would a government want to use expansionary fiscal policy to help stimulate aggregate demand if,in the long run,we would expect prices to adjust and the economy to return to its long-run equilibrium on its own?

• A) Expansionary fiscal policy always works in stimulating aggregate demand.
• B) It could take a long time for prices to adjust by market forces alone.
• C) Expansionary fiscal policy has no adverse effects on the economy.
• D) When prices adjust during a recession,we see increases in inflation.
• E) Expansionary fiscal policy is easy to get approved by Congress and the president.

Identify key factors of production and their roles.

Describe the concept of comparative and absolute advantages in trade.

Understand the role of economists and economic institutions in policy making and analysis.

Comprehend the principles underlying the circular-flow diagram and market operations.

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Definitions:

Trend Component

An underlying pattern in a time series data set that shows the direction and pace at which the series values change over time.

Exponentially Smoothed Values

Values obtained using exponential smoothing, a technique to forecast data by giving more weight to recent observations.

Motor Oil Sales

The commercial activity of selling oil used for lubricating the engines of vehicles.

Exponentially Smoothed Sales

A forecasting technique that applies weighting factors which decrease exponentially over time, used to smooth time series data.