Limited access

Upgrade to access all content for this subject

Suppose the country of Voluptas has just experienced a significant financial crisis. As a result, economic activity has plummeted and many economists claimed the country is now in a depression. The current government is being advised by a group of economists who firmly believe in the classical concept of laissez-faire. Which one of the following policies would likely be implemented in Voluptas to help the economy return to its long-run level of output and employment?


The government would immediately increase spending on infrastructure projects and borrow heavily to raise the requisite funds.


The government would encourage its central bank to increase the money supply in order to stimulate real variables such as output and employment.


The government would immediately raise income taxes in order to double the amount of unemployment insurance payments and extend the length of eligibility by one year.


The government would not intervene directly and would reassure its citizens that the economy is self-correcting and that any efforts it makes to intervene would result in a lower long-run level of economic activity​.

Select an assignment template