2017-2018 AP Eco AD/AS and Fiscal Policy

President George W. Bush and congress raised taxes and cut government expenditures . According to the aggregate supply and aggregate demand model

• both the tax increase and the cut in government expenditures would tend to decrease output.

• only the tax increase would tend to decrease output.

• only the decrease in government expenditures would tend to decrease output.

• neither the tax increase nor the cut in government expenditures would tend to decrease output.

• the tax increase would tend to increase output, the decrease in government expenditures would tend to decrease output.

Point A represents

• a short-run equilibrium and a long-run equilibrium.

• a short-run equilibrium but not a long-run equilibrium.

• a long-run equilibrium but not a short-run equilibrium.

• neither a short-run equilibrium nor a long-run equilibrium.

• an economy in short-run equilibrium not yet at the full-employment level of real GDP.

Of the following, which would increase productivity in the short run? Choose all that apply

• an increase in stock prices makes people feel wealthier.

• government spending increases.

• firms chose to purchase more investment goods.

• foreigners buy more American goods.

• Taxes increase

Aggregate demand involves

• only the quantity of goods and services households want to buy.

• only the quantity of goods and services households and firms want to buy.

• only the quantity of goods and services households, firms, and the government want to buy.

• the quantity of goods and services households, firms, the government, and customers abroad want to buy.

• the quantity of goods households, firms, the government want to buy.

If the economy starts at B and there is a fall in aggregate demand, the economy moves

• back to A in the long run.

• to B in the long run.

• to C in the long run.

• to D in the long run.

• to either A or C in the long run.

When production costs increase,

• the short-run aggregate supply curve shifts to the right.

• the short-run aggregate supply curve shifts to the left.

• the long-run aggregate supply curve shifts to the right.

• the aggregate demand curve shifts to the left.

• the aggregate demand curve shifts to the right.

Keynes believed that economies experiencing high unemployment should implement policies to

• reduce the money supply.

• reduce government expenditures.

• increase aggregate demand.

• increase aggregate supply.

The short-run Phillips curve represents the corellations of

• unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.

• unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.

• unemployment and inflation that arise in the long run as aggregate demand shifts the economy along the long-run aggregate supply curve.

• real GDP and the price level that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve.

If government policies decrease aggregate demand, then in the short run the price level

• falls and unemployment rises.

• and unemployment fall.

• and unemployment rise.

• rises and unemployment falls.

• falls and unemployment is unaffected.

If the multiplier equals 5, then the marginal propensity to save must be equal to:

• 1/4.

• 1/2.

• 3/4.

• 1/3

• 1/5.