Question : 91) Suppose the economy begins in a long-run equilibrium with : 1384414

91) Suppose the economy begins in a long-run equilibrium with Y = Y*. A permanent increase in aggregate demand will have its short-run effect on real GDP reversed in the long run with a ________ shift of ________.

A) rightward; the aggregate supply curve

B) rightward; the aggregate demand curve

C) leftward; the aggregate supply curve

D) leftward; the aggregate demand curve

E) rightward; Y*

92) Consider the AD/AS macro model. The main source of increases in material living standards over the long term is the

A) maintenance of a continuous inflationary gap.

B) continual avoidance of recessionary gaps.

C) continuous outward shift of aggregate demand.

D) continual increase in potential national income.

E) positive slope of the aggregate supply curve.

93) In the basic AD/AS macro model, permanent increases in real GDP are possible only if

A) potential output is increasing.

B) the correct fiscal policy is implemented.

C) the economy’s automatic stabilizers are allowed to operate.

D) the aggregate supply curve is vertical.

E) aggregate demand responds positively to demand shocks.

94) Fiscal policy refers to the

A) government’s attempts to maintain a vertical AS curve so as to stabilize output.

B) government’s use of spending and taxing policies to influence equilibrium real GDP.

C) government’s use of trade-related policy tools to influence the net export function, thereby influencing GDP.

D) business sector’s influence on investment and GDP.

E) households’ attempts to change saving to encourage growth.

95) Refer to Figure 24-1. If the economy is currently producing output of Y0 and the government initiates an expansionary fiscal policy adequate to close the output gap, the result will likely be

A) the vertical line at Y* will shift to the left, intersecting the AS and AD curves at Y0.

B) no change in either price level or output, since expansionary fiscal policy is ineffective.

C) that the AS curve will shift to the right until point A is reached.

D) that the AS curve and the AD curve will shift left simultaneously.

E) that the AD curve will shift to the right until point B is reached.

96) Refer to Figure 24-1. Suppose the economy is currently in a short-run equilibrium with output of Y0. An appropriate fiscal policy response, to attain potential output (Y*), is

A) an increase in personal income taxes.

B) a reduction in government purchases of goods and services.

C) an increase in corporate income taxes.

D) an increase in government purchases.

E) an increase in interest rates to encourage increased saving.

97) Refer to Figure 24-2. Suppose the economy is in a short-run equilibrium at Y1. An appropriate fiscal policy for closing the output gap is

A) a decrease in personal income taxes.

B) a decrease in government purchases.

C) an increase in current interest rates.

D) an increase in government purchases.

E) a decrease in corporate income-tax rates.

98) Refer to Figure 24-2. Suppose the economy is in a short-run equilibrium at Y1. An appropriate fiscal policy for attaining potential output (Y*) is a(n)

A) increase in personal and corporate tax rates.

B) increase in government spending.

C) increase in current consumption.

D) decrease in personal and corporate taxes.

E) decrease in current imports.

99) Refer to Figure 24-2. Suppose the economy is in a short-run equilibrium at Y1. A contractionary fiscal policy would restore the economy to potential output (Y*) by shifting the

A) AS curve to the left to intersect AD at C.

B) AS curve to the right.

C) potential GDP and the AS curve to the left.

D) AD curve to the right.

E) AD to the left to intersect AS at point A.

100) One advantage of using expansionary fiscal policy rather than relying on automatic adjustment to recover from a recessionary gap is that

A) the economy will overshoot potential GDP and a boom will be underway.

B) inflation will not be as stimulated.

C) price level will rise higher than otherwise.

D) the recovery may be more rapid.

E) the recovery will be slower, thereby causing less disruption.