Question

QUESTION 11

1. Scenario B

   The economy is growing rapidly – in fact, many economists believe it is in danger of experiencing shortages of skilled labor and key industrial inputs, such as steel and petroleum.

   Question

   Identify the most likely current state of the economy with regard to spending?

   	a.	Low
   	b.	High

  

QUESTION 12

1. Scenario B

   The economy is growing rapidly – in fact, many economists believe it is in danger of experiencing shortages of skilled labor and key industrial inputs, such as steel and petroleum.

   Question

   Identify the most likely current state of the economy with regard to unemployment?

   	a.	Low
   	b.	High

QUESTION 13

1. Scenario B

   The economy is growing rapidly – in fact, many economists believe it is in danger of experiencing shortages of skilled labor and key industrial inputs, such as steel and petroleum.

   Question

   Identify the most likely current state of the economy with regard to inflation?

   	a.	Low
   	b.	High

QUESTION 14

1. Scenario B:

   The economy is growing rapidly – in fact, many economists believe it is in danger of experiencing shortages of skilled labor and key industrial inputs, such as steel and petroleum.

   Question:

   In which direction would you change each fiscal policy tool in order to help the economy? For government spending would you increase or decrease it?

   	a.	Increase
   	b.	Decrease

QUESTION 15

1. Scenario B:

   The economy is growing rapidly – in fact, many economists believe it is in danger of experiencing shortages of skilled labor and key industrial inputs, such as steel and petroleum.

   Question:

   In which direction would you change each fiscal policy tool in order to help the economy? For taxes would you increase or decrease them?

   	a.	Increase
   	b.	Decrease

Answer 1

(Question 11) (b)

When economy is growing at high rate, aggregate output is rapidly growing, causing the economy to overheat.

(Question 12) (a)

During high growth rate, labor demand is high and unemployment is low.

(Question 13) (b)

During high growth, aggregate demand is high, causing a rise in price level (inflation).

(Question 14) (b)

To slow down the economy and prevent it from overheating, contractionary fiscal policy is used, by decreasing government spending or increasing taxes.

(Question 15) (a)

Explained as above.