Three candidates for political office disagree over the benefits of enlarging the federal budget deficit.Candidate C says the stimulation package is needed to increase employment and national income;Candidate D says it will only cause higher prices;and Candidate F says it will have no real effect.How do the three candidates differ with respect to the condition of the economy and the effects of fiscal policy?
A) Candidate C thinks the simple Keynesian model is applicable,while D thinks the expansionary policy will crowd out private investment.F believes the economy is at full employment.
B) Candidate C thinks the simple Keynesian model is applicable;D thinks the short-run aggregate supply curve is upward sloping;and F thinks the expansionary policy will generate lower interest rates.
C) Candidate C thinks the economy is at less than full employment and that the short-run aggregate supply curve is horizontal.Candidate D believes the economy is at full employment,while Candidate F believes the expansionary policy will be offset completely.
D) Candidate C thinks the short-run aggregate supply curve is upward sloping;D thinks interest rates will rise;and F thinks the economy is at full employment.
Correct Answer:
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