Which fiscal policy would promote long run economic growth? Increased spending o

Question

Which fiscal policy would promote long run economic growth? Increased spending on infrastructure Grants to university students Reduced business taxes All of the above Unions often succeed in raising their members' wages above the equilibrium level. As a result, this tends to create a shortage of labour in unionized industries this tends to create a surplus of labour in non-unionized industries unionized workers tend to be more productive than non-unionized workers the unemployment rate will fall Suppose the economy starts out in long-run macroeconomic equilibrium. The long-run effect of a positive supply shock due to technological improvement which improves productivity is an increase in potential output no change in real GDP but a lower price level a fall in the price level and a rise in real GDP both (a) and (c) If an economy is producing a level of output exceeding its potential output, this results in a downward adjustment in input prices, including nominal wages a downward adjustment in production costs an upward adjustment in input prices, including nominal wages none of the above, it is impossible to produce more than the level of potential output Refer to the above diagram. Suppose the economy is at point C and investment spending falls. The eventual long-run equilibrium will be at point: B A C D

Explanation / Answer

1a.Increased spending on infrastructure.

2.b)This tends to create a surplus of labour in non unionised industry.So unemployment issue comes with that.

Explanation-Higher wage rate attracts more labor to come so supply of labour becomes greater than demand of labour.Like that excess surplus of labour arises.

3.a)An increase in potential output.

EXPLANATION-Changes in technology can shift the aggregate supply curve when there is change in potential output from same amountil of input in long run.

4 c)an upward adjustment in input prices including nominal wages.

5.d.D

Explanation-GDP spending=Consumption spending+Investment spending+govt spending.so increase in investment spending causes output to increase.

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