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