APM_3.7, 3.8, 3.9 Lessons

What is the long-run self-adjustment mechanism in the AD-AS model?

• A process where the economy naturally returns to full employment without government intervention

• A government policy to control inflation

• A short-term economic strategy

• A method to increase government spending

Which of the following occurs during an inflationary gap?

• Actual GDP exceeds potential GDP

• Actual GDP is below potential GDP

• Wages and input costs fall

• SRAS shifts right

What is the classical view on government intervention in the economy?

• The economy corrects itself, so government intervention is unnecessary

• Government intervention is essential for economic stability

• Wages and prices adjust too slowly without intervention

• Fiscal policies are needed to address economic downturns

How does the SRAS shift during a recessionary gap?

• SRAS shifts right

• SRAS shifts left

• SRAS remains constant

• SRAS shifts downward

What is the potential GDP?

• The economy’s maximum sustainable output at full employment

• The GDP when the economy is in a recession

• The GDP when the economy is overheating

• The GDP after government intervention

What is the Keynesian view on economic recovery?

• Wages and prices adjust too slowly, requiring fiscal and monetary policies

• The economy naturally moves back to full employment

• No government intervention is needed

• Markets self-correct without any external help

What does the output gap formula calculate?

• The percentage difference between actual GDP and potential GDP

• The rate of inflation

• The unemployment rate

• The GDP growth rate

What are the key terms/concepts that you've picked up from this topic?

What is the primary goal of expansionary fiscal policy?

• To boost aggregate demand during recessions

• To control inflation in an overheating economy

• To reduce government spending

• To increase taxes

Which of the following is a tool of contractionary fiscal policy?

• Increasing government spending

• Cutting taxes

• Reducing subsidies

• Increasing transfer payments