AP Macroeconomics Unit 3 Flashcard

Front

When an economy is in equilibrium at potential gross domestic product, the actual unemployment rate is

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equal to the natural rate

Front

If the government increases expenditures on goods and services and increases taxation by the same amount, what will occur? (A) Aggregate demand will be unchanged, (B) Aggregate demand will increase, (C) Interest rates will decrease, (D) The money supply will decrease, (E) The money supply will increase.

Back

Aggregate demand will increase.

Front

Which of the following will cause an increase in aggregate demand? (A) An increase in the price level, (B) A decrease in income taxes, (C) An increase in the demand for money, (D) A decrease in the supply of money, (E) A decrease in government transfer payments

Back

A decrease in income taxes

Front

Assume the government reduces its spending and raises income taxes in an effort to reduce the budget deficit. The most likely short-run result will be an increase in

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unemployment

Front

Which of the following is an example of fiscal policy? (A) Decreasing income tax rates, (B) Increasing the money supply, (C) Decreasing the discount rate, (D) Selling government bonds, (E) Decreasing the required reserve ratio

Back

Decreasing income tax rates

Front

Which of the following is a fiscal policy action aimed at reducing unemployment? (A) Decreasing government expenditures, (B) Decreasing income taxes, (C) Decreasing tax credits, (D) Increasing nominal interest rates, (E) Increasing required reserves

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Decreasing income taxes

Front

Which of the following is an example of fiscal policy? (A) Increasing government expenditures to build highways, (B) Increasing the money supply to increase income, (C) Decreasing the discount rate to lower unemployment and inflation, (D) Decreasing the policy rate to stimulate investment, (E) Decreasing the reserve ratio to increase bank reserves

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Increasing government expenditures to build highways

Front

An economy experiences a sharp increase in energy prices, and policy makers adopt a stabilization policy to increase aggregate demand. Compared with the initial short-run equilibrium, which of the following will definitely occur? (A) Lower level of output, (B) Higher level of output, (C) Lower price level, (D) Higher price level, (E) Higher aggregate supply

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Higher price level

Front

An appropriate fiscal policy to combat a recession would be to increase which of the following? (A) Interest rates, (B) The money supply, (C) Taxes, (D) Government spending, (E) The sales of government bonds

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Government spending

Front

If equilibrium is less than potential, which fiscal policy action could move the economy to long-run equilibrium? (A) An increase in taxes, (B) An increase in the money supply, (C) An increase in government spending, (D) A decrease in transfer payments, (E) A decrease in business income tax credits

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An increase in government spending