As Discussed in the Case in Point on the Size

question 115

Multiple Choice

As discussed in the Case in Point on the size of the fiscal multiplier, a study conducted by Jonathan Parker on the effect of fiscal policy during recessions suggests that

• A) the multiplier effect of fiscal policy is much less than that for monetary policy.
• B) temporary fiscal policy financed through government borrowing implies a multiplier value between 0.8 and 1.5.
• C) fiscal policy has little effect on the economy and that the multiplier value is effectively zero.
• D) statistical models are inadequate to determine the multiplier and the multiplier value likely varies based on the state of the economy.

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Definitions:

Diseconomies of Scale

A phenomenon where a company's production costs increase due to an expansion in output, leading to inefficiencies.

Fixed Costs

Expenses that do not change with the level of output or sales, such as rent, salaries, and insurance.

Diseconomies of Scale

The phenomenon where production cost per unit increases as the scale of output increases, usually due to factors like increased complexity and inefficiencies.

Long-run Average Total Cost

The per unit cost of production when all inputs, including capital, are variable, typically depicting economies and diseconomies of scale.