econ hw

The business cycle may hamper economic growth because it creates additional ________ for business owners

risks

Which combination of fiscal policy actions would most likely offset each other?

An increase in taxes and an increase in government purchases

Use the following graph to answer the next question. The economy is at equilibrium at point B. What would expansionary fiscal policy do?

Move the economy from point B towards point A.

When successfully implemented, expansionary fiscal policy will cause

a rightward shift of the aggregate demand curve.

Use the following graph to answer the next question. In the diagram, Qf is the full-employment output. If the economy's present aggregate demand curve is AD2,

the most appropriate fiscal policy is a reduction in government purchases or an increase of taxes

Use the following graph to answer the next question. Suppose the economy is currently in equilibrium at the full-employment real GDP level of Q2.and price level of P2. If an event occurred in the economy that triggered demand-pull inflation, we would expect

the price level to move toward P3, and the output level to move toward Q3,

If an economy is operating at the natural rate of unemployment, it is

producing at its full employment real GDP.

Use the following graph to answer the next question. The horizontal axis is labeled real GDP and lists Qf. The vertical axis is labeled price level. An increasing curve AS intersects four parallel decreasing lines labeled AD0 through AD3. A dotted vertical line connects the point of intersection of AD2 and AS to Qf at the horizontal axis. In the diagram, Qf is the full-employment output. An expansionary fiscal policy would be most appropriate and needed if the economy's present aggregate demand curve were at

AD2?

Which of the following would be an example of contractionary fiscal policy?

Congress increases the corporate tax rate by 3 percent.

Use the following graph to answer the next question. The horizontal axis is labeled real GDP and from left to right, lists Q0, Q1, Q2, and Q3. The vertical axis is labeled price level and from bottom to top, lists P0, P1, P2, and P3. An increasing curve AS intersects four parallel decreasing lines labeled AD0, AD1, AD2, and AD3. Dotted lines connect the points of intersection of AS and AD0 through AD3 to the two axis at Q0 through Q3 and P0 through P3, respectively. Suppose the economy is currently in equilibrium at output level Q2, but full-employment output is at level Q1. If the government fails to enact fiscal policy and no other conditions change, the eventual price level will most likely be closest to

P1

Use the following graph to answer the next question. Assume that the economy initially has a price level of P1 and output level Q1. If the government implements expansionary fiscal policy, it would bring the economy to

P1 and Q3.

The usual aim of expansionary fiscal policy is to increase

aggregate demand

The short-term fluctuations experienced in the economy due to changes in levels of economic activity refers to the gdpBlank 1Blank 1 gdp , Incorrect Unavailable cycle

bussiness

A small reduction in government purchases can lead to a sizeable reduction in real GDP because of

demand-pull inflation.

The level of real GDP produced in an economy when it is operating at the natural rate of unemployment is called full multiplierBlank 1Blank 1 multiplier , Incorrect Unavailable GDP.

employment

A phase of the business cycle characterized by increasing real GDP income and employment is called:

expansion

The application of fiscal policy to increase aggregate demand is called aggregateBlank 1Blank 1 aggregate , Incorrect Unavailable fiscal policy.

expansionary

When the federal government uses taxation and purchasing actions to stimulate the economy it is conducting

fiscal policy

Changes in government purchases and/or taxes designed to achieve full employment and low inflation is called:

fiscal policy.

The level of real GDP produced in an economy when it is operating at the natural rate of unemployment is called:

full employment gdp

It would be appropriate to use expansionary fiscal policy during prolonged periods of

high unemployment

During a recession, the quickest way for the government to increase economic output would be to

increase government purchases and reduce taxes.

The concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP is called the incomeBlank 1Blank 1 income , Incorrect Unavailable effect.

multiplier

The expansion phase of the business cycle is typically associated with higher ________ and lower ________.

real GDP; unemployment

Use the following graph to answer the next question. The horizontal axis is labeled real GDP and from left to right, lists Q0, Q1, Q2, and Q3. The vertical axis is labeled price level. An increasing curve AS intersects four parallel decreasing lines labeled AD0, AD1, AD2, and AD3. Dotted vertical lines connect the points of intersection of AS and AD0 through AD3 to the horizontal axis at Q0 through Q3, respectively. Suppose an economy is in equilibrium at its full employment output level Q2 . Next, suppose the outcome of political events causes pessimism among businesses and consumers and the economy's aggregate demand shifts to AD1 (and the new equilibrium output is Q1). Excluding other events, if the government fails to implement expansionary fiscal policy, in the long run, we would expect Real GDP in the economy to

shift toward Q0.