Suppose the economy is initially in long-run equilibrium. What are the long-run effects on potential output of an expansionary fiscal policy? O a. Potential output will fall below its starting point because of the crowding out of private investment. O b. Potential output will adjust to a higher level.
Suppose the economy is initially in long-run equilibrium. What are the long-run effects on potential output of an expansionary fiscal policy? O a. Potential output will fall below its starting point because of the crowding out of private investment. O b. Potential output will adjust to a higher level.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
37
Transcribed Image Text:Suppose the economy is initially in long-run equilibrium. What are the long-run effects on
potential output of an expansionary fiscal policy?
O a.
Potential output will fall below its starting point because of the crowding out of
private investment.
O b. Potential output will adjust to a higher level.
The growth rate of potential output may be reduced due to the crowding out of
O c.
private investment.
O d. Potential output is fixed and will be unaffected by fiscal policy,
O e. The growth rate of potential output will rise due to the higher aggregate demand.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education