Macro Unit 3 Summary- Aggregate Demand/Supply and Fiscal Policy

What is one reason for the downward slope of the Aggregate Demand curve?

• The Wealth Effect

• The Substitution Effect

• The Income Effect

• The Law of Diminishing Returns

If the spending multiplier is 5, what would be the tax multiplier?

• 4

• 5

• 6

• It cannot be determined from the given information.

Which of the following factors can cause a shift in the Short-Run Aggregate Supply (SRAS) curve?

• Changes in consumer spending

• Changes in the price of resources

• Changes in interest rates

• Changes in net exports

What does the Long-Run Aggregate Supply (LRAS) curve represent in an economy?

• The current level of real GDP

• The output level at full employment

• The total demand for goods and services

• The maximum output achievable in the short run

What economic condition is characterized by a decrease in aggregate supply, leading to higher price levels and lower real GDP?

• Demand-pull inflation

• Positive supply shock

• Stagflation

• Recessionary gap without inflation

In the long run, how does an economy experiencing a negative output gap (recession) naturally adjust to full employment without government intervention?

• Aggregate demand increases due to lower prices.

• Wages and resource prices fall, causing short-run aggregate supply to increase.

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

• Government spending automatically increases to stimulate the economy.

Which of the following government actions represents an expansionary fiscal policy aimed at closing a negative output gap?

• Decreasing government spending.

• Increasing taxes.

• Increasing government spending or decreasing taxes.

• Decreasing transfer payments.

What are automatic stabilizers in fiscal policy?

• New laws passed by Congress to address economic fluctuations.

• Government policies that require active intervention to change aggregate demand.

• Permanent spending or taxation laws designed to work counter-cyclically without new legislation.

• Policies that only affect the long-run aggregate supply.