Does the experience of World War II demonstrate that government budget deficits and surpluses can be used to stabilize aggregate demand?
A) No, because the deficits run during the 1930s did not end the recession.
B) No, because the fact that deficits or surpluses can alter aggregate demand does not prove they can stabilize it.
C) Yes, because nominal GDP increased by more than the amount of the deficit in each wartime year.
D) Yes, because World War II demonstrated the multiplier effect of deficits.
Question 2
An individual pays 100 every month as rent for an apartment, and his monthly opportunity cost of commuting from the apartment to his place of work is 40. Which of the following statements is then true?
A) The direct cost of renting the apartment is 140.
B) The indirect cost of renting the apartment is 140.
C) The direct cost of renting the apartment is 40, whereas the indirect cost of renting the apartment is 100.
D) The direct cost of renting the apartment is 100, whereas the indirect cost of renting the apartment is 40.
