Which of the following are components of fiscal policy?
a. Transfer payments only
b. Money supply and government purchases
c. Government purchases only
d. Government purchases, transfer payments, and taxes
e. Taxes and money supply
Question 2
Suppose there is a technology to produce Grendels such that there are diseconomies of scale after the first unit is produced. There are both fixed (a physical plant called a lair) and variable (food that grows in lairs) costs of production. Which statement is true?
a. b and d.
b. Producing multiple units increases the average fixed cost.
c. There will be no more than one firm in this industry.
d. It is cheaper to make five Grendels by buying five lairs and producing one Grendel in each lair than it is to produce five Grendels in one lair.
e. This is an impossible situation.
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