Question Details

Economic policy these days is very risky because of a basic contradiction 



1. “The argument is simple and convincing: Driven by an inexorable urge to cut costs and boost profits, business buys the latest labor-saving technology and fires workers, leading to higher unemployment across the economy. The government needs to do something about this greedy behavior.” Evaluate this argument. 
a)	good argument because unemployment is bad 
b)	good argument because market failures need government fixups 
c)	bad argument because government is just as greedy 
d)	bad argument because it would inhibit growth in the standard of living 

2. ”Australia has passed the fruits of economic growth to working people through tax cuts, which encourages growth because ….” This clip is best completed with 
a)	of supply side effects 
b)	aggregate demand is increased 
c)	the multiplier operates 
d)	unemployment falls 

3. “Inequalities often lead to calls for government intervention to redistribute wealth. But history has shown the result is often not only less inequality, but also less …….” This clip is best completed with 
	a)overall standard of living b) unemployment c) inflation d) taxes 

4. ‘Every time you say that you want to "stimulate" the economy, or get it going again, or whatever words you use, what you are actually doing is urging more expenditure without regard to what that expenditure is and what it might accomplish, and without regard to what it might crowd out or displace in the process.” What is the main point being made here? 
a)	the multiplier is smaller than we think 
b)	“crowding out” is bigger than is believed 
c)	more attention should be paid to the long-run supply side of the economy 


d)	more attention should be paid to the impact of expenditure increases on unemployment 

5. ”Economic policy these days is very risky because of a basic contradiction between near-term efforts to mitigate the recession and the long-term goal of growth.” This contradiction is that 
a) taxes need to be increased for short term but increased for long term 
b) saving needs fall for short term but increase for long term 
c) interest rates need to fall for short term but increase for long term 
d) government spending needs to rise for short term but fall for long term
6. ”A rapid, global, private sector shift to thrift is exactly what the world economy does not need, but it ought to be good news in the long term.” The logic here is that higher thrift 
a)	decreases current aggregate demand, but by financing investment increases long term growth 
b)	finances current deficit spending, but reduces the deficit in the long run 
c)	means higher taxes which decreases current aggregate demand, but finances long term government spending 
d)	decreases aggregate demand, but stimulates the economy through supply-side effects 




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