Question : 18.3   Fiscal Policy in the Dynamic Aggregate Demand and Aggregate : 1244872

18.3   Fiscal Policy in the Dynamic Aggregate Demand and Aggregate Supply Model

Figure 18-5

1) Refer to Figure 18-5. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely

A) decrease government spending.

B) increase government spending.

C) increase oil prices.

D) increase taxes.

E) lower interest rates.

2) Refer to Figure 18-5. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B

A) the unemployment rate is very low.

B) firms are operating below capacity.

C) the economy is above full employment.

D) income and profits are rising.

E) there is pressure on wages and prices to rise.

3) Refer to Figure 18-5. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely pursue

A) expansionary fiscal policy.

B) contractionary fiscal policy.

C) expansionary monetary policy.

D) contractionary monetary policy.

E) contractionary automatic stabilizers.

4) From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then Congress and the president would most likely

A) increase the required reserve ratio and decrease government spending.

B) decrease government spending.

C) decrease oil prices.

D) decrease taxes.

E) lower interest rates.

5) Which of the following would be most likely to induce Congress and the president to conduct expansionary fiscal policy? A significant

A) decrease in investment spending.

B) decrease in oil prices.

C) increase in consumption spending.

D) increase in net exports.

6) If real GDP exceeded potential real GDP and inflation was increasing, which of the following would be an appropriate fiscal policy?

A) a decrease in the money supply and an increase in the interest rate

B) an increase in government spending

C) an increase in taxes

D) an increase in oil prices

7) From an initial long-run equilibrium, if aggregate demand grows faster than long-run and short-run aggregate supply, then Congress and the president would most likely

A) decrease the required reserve ratio.

B) decrease government spending.

C) decrease oil prices.

D) decrease tax rates.

8) Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

A) higher; higher

B) higher; lower

C) lower; higher

D) lower; lower

Figure 18-6

9) Refer to Figure 18-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely

A) increase the money supply and decrease the interest rate.

B) increase taxes.

C) increase government spending.

D) increase oil prices.

E) raise interest rates.

10) Refer to Figure 18-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B

A) the unemployment rate is very low.

B) firms are operating at below capacity.

C) the economy is below full employment.

D) income and profits are falling.

E) there is pressure on wages and prices to fall.