Time lags associated with policy decision making and implementation suggest that

Question

Time lags associated with policy decision making and implementation suggest that: increases in spending to fight a recessionary gap can be timed correctly, increases in spending to fight a recessionary gap may occur too early, increases in spending to fight a recessionary gap may occur too late, most information is old before the public is aware of it. If the marginal propensity to consume is 0.9, then the government spending multiplier is: An example of an automatic stabilizer is: tax receipts rising when GDP rises, a discretionary increase in taxes. government purchases of goods and services rising when GDP rises, government transfers rising when GDP rises. Money is anything that: serves as a medium of exchange for goods and services, can be converted to silver with relatively little loss in value, can be converted to gold with relatively little loss in value, is traded in the stock market. When, in The Wealth of Nations, Adam Smith wrote of "a sort of waggon-way through the air," he was referring to: the invisible hand, the forces of competition, mass transit systems of the future, paper money. Fiat money: is currency from Italy. can include currency backed by gold but not by silver, is currency backed by the gold in Fort Knox, has advantages over commodity-backed money.

Explanation / Answer

(16) (C)

A recessionary gap requires immediate increase in aggregate demand, but the time lags in policy measures delay the effectiveness.

(17) (D)

Multiplier = 1 / (1 - MPC) = 1 / (1 - 0.9) = 1 / 0.1 = 10

(18) (A)

(19) (A)

The most important use of money is as a medium of exchange.

(20) (A)

(21) (D)

Fiat money is the legal tender money, which has the sovereign backing by government and does not required commodities to be used as money.

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