Macro 3.2- Inflationary and Recessionary Gaps with Fiscal and Monetary Policy AP Macro

Mr. Cliff from ACDC Econ explains key macroeconomic concepts, focusing on aggregate demand and supply. He discusses inflationary and recessionary gaps, highlighting their impact on unemployment and GDP. The video covers fiscal policy measures like government spending and taxes to address these gaps. Additionally, it introduces monetary policy, explaining how changes in the money supply affect interest rates and investment. The goal is to understand these concepts to solve economic problems using fiscal and monetary policies.

What does an inflationary gap indicate about the economy?

• The economy is producing below its potential.

• The economy is overheating with low unemployment.

• The economy is in a state of equilibrium.

• The economy has high unemployment.

Which fiscal policy action can help reduce an inflationary gap?

• Increasing government spending

• Decreasing taxes

• Decreasing government spending

• Increasing exports

How can fiscal policy address a recessionary gap?

• By reducing exports

• By increasing government spending

• By decreasing government spending

• By increasing taxes

What effect does decreasing the money supply have on interest rates?

• It has no effect on interest rates.

• It increases interest rates.

• It stabilizes interest rates.

• It decreases interest rates.

Which policy primarily affects investment through interest rates?

• Supply-side policy

• Monetary policy

• Trade policy

• Fiscal policy