An aggregate demand curve can be drawn by: a. shifting the ...

[CharlieWard]

An aggregate demand curve can be drawn by:
 a. shifting the 45-degree line.
 b. letting changes in autonomous spending shift the aggregate expenditure line.
  c. letting changes in the price level shift the aggregate expenditure line.
 d. letting changes in the level of income shift the aggregate expenditure line.
  e. letting changes in real GDP shift the aggregate expenditure line.

Question 2

Cite an advantage and a disadvantage for command-and-control vs. incentive-based approaches. Then do the same for environmental taxes vs. emissions trading.

[fwbard]

Answer to Question 1

c

Answer to Question 2

Command-and-control is simple, since it applies equally to all firms. It may also be seen as fair. The disadvantage is it is inefficient, because it applies uniformly. Incentives-based regulations have the advantage of flexibility, allowing firms that can clean up at lower cost to reduce emissions more than firms that have a higher cost of clean-up. One problem may be an old source bias, whereby older technologies are exempt from trading.
As for taxes vs. trading, taxes have the advantage of familiarity. A disadvantage is knowing how to determine external costs in order to set the tax. Emissions trading leaves it to firms to
determine the cost of clean-up. This is an advantage, since firms have better information than government on clean-up costs. Disadvantages include problems like thin trading, so that the emissions price is not determined competitively.