Question

Rising inflation is an example of when an Expansionary policy would be best . True/False

A stock market collapse that hurts consumers and business confidence is an example of when an expansionary policy would be best. True/False

A rise in oil prices is an example of when aContractionary policy would be best.   True/False

Extreme rapid growth of exports is an example of when aContractionary policywould be best. True/false

If the government runs a budget deficit of $10 billion each year for 10 years, and then a surplus of $1 billion each year for the next 5 years, what is the government debt?

A government starts off with a deficit of $2.3 billion. In year 1, the government runs a deficit of $300 million. In year 2, the government runs a surplus of $1.5 billion, and in year 3, runs a deficit of $2 million. What is the total debt of the government at the end of year 3?

Answer 1

(1) False

During rising inflation, contractionary policy is best.

(2) True

Lower consumer and business confidence will reduce consumption, investment and aggregate demand. Expansionary policy is used to increase AD.

(3) False

Rise in oil price decreases aggregate supply, which increases price level and decreases output. Expansionary policy is used to increase output.

(4) True

Rise in exports increases aggregate supply, which increases price level and increases output. Contractionary policy is used to decrease inflation.