An expansionary fiscal policy shifts the aggregate demand curve Select one: a. to the right and is used to close an inflationary gap. b. to the right and is used to close a recessionary gap. c. to the left and is used to close an inflationary gap. d. to the left and is used to close a recessionary gap.

Q23

uèstion 21 pounts The economy is in a recession. The government enacts a policy to increase the real GDP by $10 billion. The MPS is 0.2. Assuming that the agggregate supply curve is horizontal across the range of GDP being considered, by how much should the government change spending or taxes in order to achieve its objective? Show your calculations. e For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BIUS Paragraph Arial 10pt A v x X, Re v 55 OWORDS POWERED 図 田 lili 用

A decrease in government purchases of $6 billion leads to an initial $4.5 billion decrease in withdrawals. a. In this case MPW is, MPC is, and the spending multiplier in this economy is Enter your responses for marginal propensities and multiplier values rounded to 2 decimal places. b. With this change in government purchases the AD curve shifts to the by $billion. Enter your response for the size of the curve shift rounded to 1 decimal place. Do not put a minus sign in your answer. c. As a result of this shift the equilibrium price level will (Click to select) vv and equilibrium real output will C A decrease in government purchases of $6 billion leads to an initial $4.5 billion decrease in withdrawals. MPC is a. In this case MPW is , and the spending multiplier in this economy is propensities and multiplier values rounded to 2 decimal places. Enter your responses for marginal b. With this change in government purchases the AD curve shifts to the (Click to select) by $ of the curve…

If the equilibrium real GDP were higher than potential GDP, then a contractionary fiscal policy would cause the inflation rate to be ________ and real GDP to be ________.   a.   higher; higher   b.   higher; lower   c.   lower; higher   d.   lower; lower

Automatic stabilizers cause government revenues to during a recession and cause government expenditures to during a recession. (Choose the answer that fills in the two blanks) a. Increase; decrease b. Increase; increase C. Decrease; decrease d. Decrease; increase e. Not change; not change

Principles List 6: Principle 1. Explain what it means If The Marginal Propensity to Consume = 2/3 And draw a Consumption Curve with The Marginal Propensity to Consume = 2/3 principle 2. Define equilibrium in the Aggregate Expenditures Model or the Keynesian Model and illustrate the Equilibrium graphically Principle 3. Define the expenditures Multiplier and illustrate it graphically Principle 4. Distinguish between Fiscal Policy solution for a recession and Monetary Policy for a recession

Show effect of expansionary fiscal policy in the short run and medium run. AS AD model using ISLM model.

Suppose the government, in an effort to avoid an increase in the deficit, votes for a budget neutral tax cut policy. Assume the marginal propensity to consume (MPC) is equal to 0.75 and taxes are cut by $15 billion. Round answers to the nearest billion, and specify decreases as a negative number. By how much will government spending change? change in government spending: $ What is the resulting change in the equilibrium level of real GDP? change in equilibrium level of real GDP: $ billion billion

The multiplier effect occurs when: Group of answer choices a. the planned spending in the economy changes. b. expansionary fiscal policy is implemented. c. contractionary fiscal policy is implemented. d. All of the options.