To combat a recession, the Keynesian fiscal policy recommends the Government: Select one: a. Increases taxes and decreases government spending to balance the budget. b. increases government spending and reduces taxes. c. increases taxes. d. reduces both taxes and government spending.

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The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Fiscal Policy Price Level 160 LRAS AS 140 120 100 80 60 40 20 0 AD 1 AD 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? EA billion Suppose instead that the MPC is 0.75. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.

If taxes are lowered, we can expect supply-side economists to support the decision to do so because   a. government revenues will increase in the long run.   b. government spending will decrease in the long run.   c. the government will spend more in the short run.   d. economic growth cannot occur without it.

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

Which of the following statements is true?   Question options:   Keynes believed wages and prices are often too flexible - falling wages can cause a recession.   Keynes believed an economy could get stuck in a recessionary gap.   Keynes advocated running government surpluses in times of recession.   Keynes believed the economy is self-regulating.   b and c

Identify each scenario as an example of expansionary fiscal policy, contractionary fiscal policy, or not an example of fiscal policy. a. An increase in the money supply is b. A decrease in taxes is fiscal policy. not an example of fiscal policy. a contractionary an expansionary d. An increase in tax rates is c. A decrease in the unemployment rate is fiscal policy. fiscal policy. f. A decrease in the money supply is e. A decrease in government spending is fiscal policy. fiscal policy. h. An increase in corporate bonds purchased is g. A decrease in transfer payments is fiscal policy. fiscal policy. i. An increase in government spending is fiscal policy.

W, J, E The following diagram illustrates an economy where its current level of GDP (i.e. national income, Y) is Ye. E 0 YF Assume that the government wishes to use fiscal policy to achieve the full-employment.level of GDP (YF). It could decrease government expenditure by fd. increase government expenditure by YF - Ye. decrease government expenditure by YF - Ye. increase government expenditure by fd.

Why does a $100 billion dollar increase in government spending increase output by more than $100 billion?

According to Keynes,   a. government spending should decrease during recessions.   b. aggregate demand is most important to achieve potential output.   c. aggregate supply is most important to achieve potential output.   d. the government should not utilize fiscal policy to influence economic activity.