AP Macro 3.07

If Congress wants to decrease inflation, what policies could they adopt?

Decrease government spending and increase taxes

If real GDP is $500 billion, full employment GDP is $300 billion, and the marginal propensity to consume is 0.9, then Congress should

decrease spending by $20 billion.

If real GDP is $200 billion, full employment GDP is $500 billion, and the marginal propensity to consume is 0.75, then Congress should

decrease taxes by $100 billion.

If real GDP is $400 billion, full employment GDP is $500 billion, and the marginal propensity to consume is 0.5, then Congress should

decrease taxes by $100 billion.

Using the graph above, the government should

decrease taxes to close the recessionary gap. (AD and SRAS intersect below LRAS)

If Congress wants to increase aggregate demand, they could

decrease the amount of personal income taxes an individual pays.

A change in personal income taxes impact gross domestic product through a change in

disposable income.

All of the following will cause a change in consumer spending except

government expenditures.

If real GDP is $400 billion, full employment GDP is $800 billion, and the marginal propensity to consume is 0.5, then Congress should

increase purchases by $200 billion.

If real GDP is $400 billion, full employment GDP is $500 billion, and the marginal propensity to consume is 0.5, then Congress should

increase purchases by $50 billion.

If real GDP is $500 billion, full employment GDP is $300 billion, and the marginal propensity to consume is 0.9, then Congress should

increase taxes by $22.22 billion.

The government of an economy in equilibrium above potential output should

increase taxes to close the inflationary gap.

Using the graph above, the government should

increase taxes to close the inflationary gap. (AD and SRAS intersect above LRAS)

If real GDP is $500 billion, full employment GDP is $200 billion, and the marginal propensity to consume is 0.75, then Congress should

increases taxes by $100 billion.

If the government increases personal taxes, then

output and price level will decrease.

When looking at an AD/AS graph with LRAS, the intersection of AD/AS

represents RGDP and LRAS is potential GDP.

Which of the following correctly describes the cause and effect chain for a decrease in personal income taxes?

A decrease in taxes will increase disposable income which increases consumer spending and shifts AD right.

If the government enacts the proper fiscal policy to solve the problem in the economy illustrated in the graph above, then the

AD curve would shift left. (AD and SRAS intersect above LRAS in graph)

Which of the following correctly describes the cause and effect chain for an increase in personal income taxes?

An increase in taxes will decrease disposable income which decreases consumer spending and shifts AD left.

Assume an economy in long-run equilibrium. If there is a rise in the stock market that increases the value of stocks held by households, which of the following will be true? I. Inflationary gap develops. II. Recessionary gap develops. III. Expansionary policy should be used to return the economy to equilibrium. IV. Contractionary policy should be used to return the economy to equilibrium. V.Economy remains in long-run equilibrium.

I and IV only.

Assume an economy in long-run equilibrium. If there is a rise in the stock market that increases the value of stocks held by households, which of the following will be true? Inflationary gap develops. Recessionary gap develops. Expansionary policy should be used to return the economy to equilibrium. Contractionary policy should be used to return the economy to equilibrium. Economy remains in long-run equilibrium.

I and IV only.

Which of the following are beliefs of Keynesian economists? I. The economy is stable in the long-run II. The economy is never at full employment of resources III. Prices and wages are downwardly inflexible

II and III only

Assume an economy in long-run equilibrium. If in an effort to reduce the debt the government decides to decrease spending on social programs, which of the following will be true? I. Inflationary gap develops. II. Recessionary gap develops. III. Expansionary policy should be used to return the economy to equilibrium. IV. Contractionary policy should be used to return the economy to equilibrium. V. Economy remains in long-run equilibrium.

II and III only.

If Congress wants to fix a recession in the economy, what fiscal policies could they use?

Increase government spending and decrease taxes

Assume that MPC for an economy is 0.5. If the government decreased personal income taxes and expenditures by the same amount, then

NOT aggregate demand will increase.

An example of a government transfer of funds would include

Social Security paid to retired department of defense workers.

What is the problem in the economy illustrated in the graph above?

Unemployment (AD and SRAS intersect below LRAS in graph)