3.8 Fiscal Policy

Multiple Choice

Why does the amount of goods and services that money can buy decrease when there is an increase in aggregate demand?

• Because of the real wealth effect, interest rate effect, and exchange rate effect

• Due to inflation only

• Because of government spending

• Due to changes in technology

Labeling

Label the graph!

Drag labels to their correct position on the image

LRAS

SRAS

AD

Real GDP

Price Level

Multiple Choice

What happens to aggregate demand if there is a significant increase in national income?

• It decreases

• It fluctuates unpredictably

• It remains unchanged

• It increases

Multiple Choice

If there is an increases in wages and firms pay more when producing goods then the

• AD curve shifts right

• AD curve shifts left

• AS curve shifts right

• AS curve shifts left

Multiple Choice

Which of the following factors will not shift the AD curve right?

• increase in the cost of labour

• increase in consumer confidence

• increased exports

• increased investment

John Maynard Keynes

“But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again” 

Multiple Choice

If and economy experiences a dramatic rise in prices, which fiscal policy action could be taken?

• Selling securities on the open market
• Raising interest rates
• Reducing government spending
• Raising reserve requirements

Multiple Choice

The Federal government is concerned that economic growth is too high, that it is unsustainable, and that inflation is resulting. Which of the following fiscal policies  might be enacted to reduce inflation?

• Increasing taxation
• Open market sales
• decreasing taxation
• Increasing government spending

Multiple Choice

Which fiscal policy tool would be used if the economy were in a trough?

• increase the money supply

• increase individual tax rate

• decrease the money supply

• increase government spending

Drag and Drop

Suppose your MPC = .9 and you have a recessionary gap of $800 million. You should ​

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government spending by ​

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or ​

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taxes by ​

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.

Drag these tiles and drop them in the correct blank above

increase

$80 million

decrease

$89 million

$160 million

$200 million