Question

1. What function is a horizontal line when Aggregate Expenditure = C + I + G + (X – M)?

Imports

Government spending

Consumption

2. The goal of the government of Swansia last year was to increase the level of aggregate demand by reducing tax rates. What fiscal policy type did Swansia use?

discretionary and expansionary

contractionary and automatic

automatic and expansionary

3. If Congress passed a new budget that increased taxes it would?

reduce the gross domestic product to a new equilibrium as it rises and the aggregate demand shifts to the right.

increase the gross domestic product to a new equilibrium as aggregate demand shifted to the left

reduce the gross domestic product to a new equilibrium as aggregate demand shifted to the left.

4. Corporate stock ________.

is considered to be a loan from a bank.

represents debt in a firm.

represents ownership in a firm.

Answer 1

1. Government Spending

Explanation-

The level of government spending is determined by political factors, not by the level of GDP. Thus, government spending is drawn as a horizontal line.

2.discretionary and expansionary

Explanation-

Discretionary fiscal policy means the government make changes to tax rates and or levels of government spending. Expansionary fiscal policy means when the government is reducing taxes or increasing its spending to increase aggregate demand.

3. Reduce the gross domestic product to a new equilibrium as aggregate demand shifted to the left.

Explanation-

AD = C + I + G +(X-M)

The aggregate demand curve tends to shift to the left when total consumer spending declines. Consumers might spend less because the government taxes have increased.

4. represents ownership in a firm.

Explanation-

Corporate stock represents an ownership on the assets and earnings of the company