Why the recession should tighten its belt

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Explain why each of the following statements is Uncertain according to economic principles. Use diagrams where appropriate

When the economy goes into recession a government that is interested in shortening the duration of the recession should "tighten its belt" and reduce spending to match the decrease in its tax revenues.

Neoclassical growth theory implies that a $100 million investment in a poor country (one with a small capital stock) will increase GDP in that country by more than a similar investment in a rich country.

In the short run changes in GDP can be thought of as stemming from changes in the employment rate of labour, while in the long run, changes in GDP can be thought of as stemming from changes in the labour force and/or changes in labour productivity (output per employed worker).

Reference no: EM13222704

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