Refer to Figure 4-12 which shows the market for vitamins. Suppose ...

[Chloeellawright]

Refer to Figure 4-12 which shows the market for vitamins. Suppose the government imposes a price ceiling of Pv. How will the price ceiling affect the quantity supplied, quantity demanded, and quantity exchanged?
 
  What will be an ideal response?

Question 2

What is the distinction between automatic and discretionary fiscal policy?
 
  What will be an ideal response?

[AngeliqueG]

Answer to Question 1

The price ceiling will have no effect on the market outcome. An effective price ceiling must lie below the free market equilibrium. Thus, in this case the market outcome will be determined by forces of demand and supply.

Answer to Question 2

Automatic fiscal policy is triggered by the state of the economy with no need for any government action. Discretionary fiscal policy, however, requires an act of Congress to either change government spending and/or change taxes.