Business Economics -Assignment Questions The Importance of Institutions and Causes of Long Run Performance Question 1: How can governments influence the long run rate at which the economy grows? Question 2: … or do governments have little power to affect long run performance? Fiscal policy: Managing Aggregate Demand Question 1: Keynesian economics is often viewed as justifying increases in deficit spending by the government to stimulate real economic activity. How does this proposal relate to Keynes own writing reproduced in the case? Question 2: What role do confidence and psychology play in Keynes understanding of the economy and the role of government? Question 3: Why is Keynes so concerned with uncertainty? Question 4: Explain intuitively the mechanism by which an increase in government spending can lead to more output. Question 5: Is it reasonable to assume that firms will supply more output when consumers and the government demand to purchase it? Question 6: Read the following from the Washington Post, 1 August 2003: The economy continued to lose jobs during the 2nd quarter, as the jobless rate rose to a nine-year high of 6.4 percent in June. But the Labor Department reported yesterday that the number of people filing initial claims for unemployment benefits declined again last week, a possible signal that the lackluster U.S. labor market is beginning to improve, analysts said. The government’s July employment figures will be released today. Democrats have increasingly complained that President Bush’s economic policies, which have centered on income tax cuts for individuals and businesses, have done little to help the more than 9 million unemployed workers. The Bush administration welcomed the economic reports yesterday. “Today’s announcement . . . indicates that our economy is clearly moving in the right direction,” Commerce Secretary Donald L. Evans said in a statement. “The president’s tax cut is beginning to work its way into the economy, and the stock…
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