Using policy to stabilize the economy The government has the ability to influence the level of output in the short run using monetary and fiscal policy. There is some disagreement as to whether the government should attempt to stabilize the economy. 1. Which of the following are arguments in favor of active stabilization policy by the government?
A. Businesses make investment plans many months in advance.
B. The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates.
C. The current tax system acts as an automatic stabilizer.
D. Changes in government purchases and taxation must be passed by both houses of Congress and signed by the president.
2.Which of the following are examples of automatic stabilizers?
A. The federal funds rate.
B. Unemployment insurance benefits.
C. Corporate income taxes.

In each of the cases below, assume division x has a product that can be sold either to outside customers or to division y of the same company for use in its production process. the managers of the divisions are evaluated based on their divisional profits. case a b division x: capacity in units 200,000 200,000 number of units being sold to outside customers 200,000 160,000 selling price per unit to outside customers $ 90 $ 75 variable costs per unit $ 70 $ 60 fixed costs per unit (based on capacity) $ 13 $ 8 division y: number of units needed for production 40,000 40,000 purchase price per unit now being paid to an outside supplier $ 86 $ 74 required: 1. refer to the data in case a above. assume in this case that $3 per unit in variable selling costs can be avoided on intracompany sales. a. what is the lowest acceptable transfer price from the perspective of the selling division? b. what is the highest acceptable transfer price from the perspective of the buying division? c. what is the range of acceptable transfer prices (if any) between the two divisions? if the managers are free to negotiate and make decisions on their own, will a transfer probably take place?