23. Which of the following statements is correct? (A) Maintaining fiscal balance in a recession helps to stabilize the economy. (B) Automatic stabilizers refer to the fact that economic shocks are partly offset by households smoothing their consumption in the face of variable income. (C) The multiplier on a fiscal stimulus is higher when the economy is functioning at full capacity. (D) A fiscal stimulus can be implemented by raising spending to directly increase demand, or by cutting taxes to increase private sector demand.

5. Four farmers are deciding whether to contribute to the maintenance of an irrigation project. For each farmer, the cost of contributing to the project is $10. But when any one farmer contributes, all four of them will benefit from an increase in their crop yields, in particular each gains additional $8. Which of the following statements is correct? (A) If all the farmers are selfish, none of them will contribute. (B) There are multiple Nash equilibria in this game. (C) If Kim is altruistic and contributes $10, the others might contribute too, even if they are selfish. (D) If the farmers have to reconsider this decision every year and consider infinite horizon of planning, they will never choose to contribute to the project if they are selfish.

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