SOLVED

18.2  The Effects of Fiscal Policy on Real GDP and the Price Level 1) Congress and the president carry out fiscal policy through changes in A) interest rates and the money supply. B) taxes and the interest rate. C) government purchases and the money supply. D) government purchases and taxes. 2) Fiscal policy is determined by A) the Federal Reserve. B) the president and the Federal Reserve. C) Congress and the Federal Reserve. D) Congress and the president. 3) An increase in government purchases will increase aggregate demand because A) government expenditures are a component of aggregate demand. B) consumption expenditures are a component of aggregate demand. C) the decline in the price level will increase demand. D) the decline in the interest rate will increase demand. 4) Expansionary fiscal policy involves A) increasing government purchases or decreasing taxes. B) increasing taxes or decreasing government purchases. C) increasing the money supply and decreasing interest rates. D) decreasing the money supply and increasing interest rates. 5) Refer to Figure 18-1. An increase in taxes would be depicted as a movement from ________, using the static AD-AS model in the figure above. A) E to B B) B to C C) A to B D) B to A E) C to D 6) Refer to Figure 18-1. Suppose the economy is in a recession and expansionary fiscal policy is pursued. Using the static AD-AS model in the figure above, this would be depicted as a movement from A) A to B. B) B to C. C) C to B. D) B to A. E) A to E. 7) Refer to Figure 18-1. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from A) A to B. B) B to C. C) C to B. D) B to A. E) A to E. 8) Refer to Figure 18-1. Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued. Using the static AD-AS model in the figure above, this would be depicted as a movement from A) A to B. B) B to C. C) C to B. D) B to A. E) A to E. 9) Refer to Figure 18-1. Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from A) D to C. B) A to E. C) C to B. D) B to A. E) E to A. 10) Refer to Figure 18-1. Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued. Using the static AD-AS model in the figure above, this would be depicted as a movement from A) D to C. B) A to E. C) C to D. D) C to B. E) E to A.