chapters 12 + 13
When the federal government use taxation and spending actions to stimulate the economy it is conducting
Fiscal Policy
Refer to the figure above. The economy is at equilibrium at point C which is below potential output. What fiscal policy would increase real GDP?
Shift aggregate demand by increasing transfer payments
In the aggregate demand-aggregate supply model, the economy's price level is assumed to be
variable, unlike in the aggregate expenditures model
When the government takes budgetary action to stimulate the economy or rein in inflation such policy is
discretionary fiscal policy
Refer to the graph above. Which of the following factors does not explain a movement along the AD curve?
The expenditure multiplier effect
The interest rate effect on aggregate demand indicates that an
decrease in the price-level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending
The aggregate demand curve shows the
inverse relationship between the price level and the quantity of real GDP
The real balances effect on the aggregate demand that a
lower price level will increase the real value of money financial assets and therefore cause an increase in spending
Refer to the figure above. The economy is at equilibrium at point B. What would expansionary fiscal policy do
move the economy from point B towards point A
When changes in taxes and government spending occur in the economy without explicit action by Congress such policy is called
non discretionary