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Suppose that, during a recession, the government borrows money to provide free movies as a distraction from the poor economy. Which of the following statements are correct?
A. The free movies as a distraction from the poor economy will likely raise interest rates as the government borrows more money to finance the purchase.
B. This policy will likely be accompanied by an impact lag as the policy takes time to make its way to the people.
C. The provision of free movies is an example of an automatic stabilizer.
D. The government is engaging in contractionary fiscal policy.
E. Crowding-out will occur as individuals choose to rely on free movies instead of purchasing their own.

Respuesta :

Answer: A. . The free movies as a distraction from the poor economy will likely raise interest rates as the government borrows more money to finance the purchase.

B. This policy will likely be accompanied by an impact lag as the policy takes time to make its way to the people.

E. Crowding-out will occur as individuals choose to rely on free movies instead of purchasing their own

Explanation:

We are informed that during a recession, the government borrows money to provide free movies as a distraction from the poor economy.

The effect of this is that there will be a likely increase in the interest rates because the government borrows more money to finance the purchase of tickets.

Also, due to the free movies, there'll be an impact lag as the policy will take time before it make its way to the people and there will also be crowding-out because the individuals will rely on free movies instead of purchasing their own.

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