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