AP Macroeconomics SRAS/AD/LRAS and Fiscal Policy Unit 3 TEST
Fiscal policy refers to the
deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.
In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:
increase aggregate demand
other things equal, a reduction in personal and business taxes can be expected to
increase both aggregate demand and aggregate supply
Given a fixed upsloping AS curve, a rightward shift of the AD curve will
increase both the price level and the real output
in the diagram, a shift from AS2 to AS3 might be caused by a(n)
increase in business taxes and costly government regulation
a rightward shift of the AD curve in the very steep upper part of the short-run AS curve will
increase real output by more than the price level
In a certain year, the aggregate amount demanded at the existing price level contains $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain price-level stability under these conditions, the government should
reduce tax rates and/or increase government spending
an expansionary fiscal policy is shown as
rightward shift in the economy's aggregate demand curve.
Graphically, demand-pull inflation is shown as a
rightward shift of the AD curve along an upsloping AS curve
Refer to the graph. Which of the following changes will shift AD1 to AD2?
a cut in personal and business taxes
an appropriate fiscal policy for a severe recession is
a decrease in tax rates
in which of the following sets of circumstances can we confidently expect inflation
aggregate supply decreases and aggregate demand increases
Which of the diagrams for the US economy best portrays the effects of a dramatic increase in energy prices?
b
the determinants of aggregate supply
include resource prices and resource productivity
In the diagram, the economy's short-run AS curve is line ___, and its long-run AS curve is line ___.
2,1
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, an inflation is absent in
A and C
the short-run aggregate supply curve
Becomes steep at output levels above the full-employment output
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decrease in resource prices is depicted by
C
Which of the diagrams for the U.S. economy best portrays the effects of a substantial reduction in government spending?
D
Other things equal, a decrease in the real interest rate will
expand investment and shift the AD curve to the right
Refer to the diagram, in which Qf is the full-employment output. If the economy's present aggregate demand curve is AD2
government should undertake neither an expansionary nor a contractionary fiscal policy
In a certain year, the aggregate amount demanded at the existing price level contains $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price-level stability under these conditions, the government should
increase tax rates and/or reduce government spending
In the accompanying figure, if AD1 shifts to AD2, then the equilibrium output
increases from Q1 to Q3
If the MPC in an economy is 0.1, the government could shift the aggregate demand curve rightward by $40 billion by
increasing government spending by $4 billion
If the MPC in an economy is 0.75, the government should shift the aggregate demand curve $60 billion by
increasing taxes by $20 billion
Discretionary fiscal policy is so named because it
involves a specific change in T and G undertaken expressly for stabilization at the option of Congress
contractionary fiscal policy is so named because it
is aimed at reducing aggregate demand and thus achieving price stabability
Expansionary fiscal policy is so named because it:
is designed to expand real GDP
the aggregate supply curve (short run)
is steeper above full-employment output than below it
A decline in investment will shift the AD curve to the
left my a multiple of the change in investment
if the investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift
leftward by $40 billion at each price level
Graphically, cost-push inflation is shown as a
leftward shift of the AS curve
An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the
multiplier effect
The equilibrium price level and level of real output occur where
the aggregate demand and supply curves intersect