Question

1. A fiscal policy to expand aggregate supply: Group of answer choices results in increased output and a lower price level. works faster than fiscal policy to increase aggregate demand. requires tough trade restrictions to be effective. focuses on short-run economic growth. 2. Automatic stabilizers include all of the following EXCEPT: Group of answer choices tax revenues. transfer payments. increased research and development. All of the answers are correct. 3.All of these would help the U.S. achieve fiscal sustainability in the near future EXCEPT: Group of answer choices cuts in Social Security and Medicare. the abolishment of automatic stabilizers. reforms in government accounting procedures. massive tax increases to fund future Medicare liabilities. 4.Which statement is TRUE? Group of answer choices Changes in tax rates affect aggregate demand but not aggregate supply. Changes in tax rates affect both aggregate demand and aggregate supply. An increase in tax rates increases individuals' incentive to invest. An increase in tax rates encourages individuals to work more. 5.If the marginal propensity to consume in an economy is 0.75, what will be the effect of a reduction in government spending by $100 on the equilibrium output? Group of answer choices The equilibrium output will reduce by $400. The equilibrium output will reduce by $250. The equilibrium output will increase by $400. The equilibrium output will increase by $250.

Answer 1

1. The correct answer is,

• results in increased output and a lower price level

When the aggregate supply increases it results in an increase in output and reduced prices. It is when the price decreases that the supply increases. The policies for boosting aggregate supply look for long-term effects such s in the case of investment in the educational sector. So they are not intended to produce short-term results. Also, the regulations have to be reduced as they help in increasing supply in the economy.

2. The correct answer is,

• increased research and development

Automatic stabilizers include tax rates and transfer payments but not research and development.

3. The correct answer is,

• massive tax

Massive taxation may yield higher revenues for the government but will affect the spending and earnings of people severely. This not help the nation to stabilize its economy.

4.The correct answer is,

• Changes in tax rates affect both aggregate demand and aggregate supply

The changes in tax rates will have an effect on both aggregate demand and supply. Because if tax rates are reduced, the supply of goods will reduce, the price level will decrease which in turn increases the demand. Similarly, if tax rates are increased, the supply will be more which makes the prices increase. This will reduce the demand side of the economy.

5. The correct answer is,

• The equilibrium output will reduce by $400

If MPC is 0.75, then the multiplier is 1/1-MPC

= 1/.25=4.

Therefore if there is a reduction in government spending by $100, then there will be a reduction of $400 in output.

$100*4=$400.