On the Basis of Both Theory and Empirical Evidence, Most

question 64

Multiple Choice

On the basis of both theory and empirical evidence, most economists believe that changes in fiscal policy have

• A)powerful effects on real GDP and factor prices both in the short run and in the long run.
• B)important short- run effects on real GDP and factor utilization but are less effective in changing potential GDP in the long run.
• C)no effect on factor utilization in the short run or on factor prices in the long run.
• D)long- run effects on potential GDP but have little impact on short- run real GDP.
• E)major effects on the incentive to save in the short run.

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Definitions:

Diminishing Returns

A principle stating that as investment in a single area of production increases, the rate of return from that investment, after a certain point, begins to decrease.

Worker

A person engaged in work, especially in manual or industrial labor, often for wages.

Profit Maximizing

Profit maximizing is the process by which a firm determines the price and output level that returns the greatest profit.

Workers Paid

Workers Paid refers to the total compensation, including wages, salaries, and benefits, given to employees for their labor.