Question

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

a) is producing at a point where output is less than potential GDP.

B) is producing at its potential GDP.

C) is producing at a point where output is more than potential GDP.

D) is producing at its equilibrium point.

Question 21 pts

A fiscal policy that increases government spending or cuts taxes is most appropriate when the economy is in:

a recessionary gap.

an inflationary gap.

a short-run equilibrium.

a long-run equilibrium.

Question 31 pts

Keynes argued that:

both the short run and the long run are equally important.

the distinction between the short run and the long run is irrelevant.

the short run is a more important policy concern than the long run.

the long run is a more important policy concern than the short run.

Question 41 pts

Which of the following is an example of an expansionary fiscal policy?

A decrease in government spending

An increase in the money supply

An increase in taxes

An increase in government spending

Question 51 pts

Which of the following would shift the aggregate demand curve to the left?

A decrease in exports

A higher future expected price level

A depreciation in the value of the country's currency

An increase in foreign income

Question 61 pts

Suppose a Keynesian economist recommends a combination of tax increases and spending cuts. This recommendation is most likely an attempt to address high _____.

unemployment

inflation

interest rates

deficits

Question 71 pts

Which of the following would shift the aggregate demand curve to the right?

drop in business confidence

A lower expected rate of return

rise in future expected income.

an increase in taxes

Question 81 pts

The expenditure multiplier exists because _____.

spending by one consumer can become the disposable income of another consumer

sticky prices increase the spending power of wage increases by a disproportionate amount

the money supply increases when investment goes up even without an increase in spending

tax increases have a disproportionate effect on consumer spending

Question 91 pts

If the price of U.S.-produced goods becomes relatively less expensive compared to foreign-produced goods, ____________ increase(s).

imports

foreign investment

exports

government spending

Question 101 pts

When equilibrium GDP is less than full-employment GDP, a Keynesian solution would be ________, such as increased government spending or reduced taxes.

contractionary monetary policy

expansionary monetary policy

contractionary fiscal policy

expansionary fiscal policy

Answer 1

1) Option A is correct as when unemployment is high and prices are not rising fast, then output would be below the natural output for two reasons, one is less people are employees means less production comparatively to earlier. Second, prices are rising less fast means producers have less incentive to produce more.

2) Option A is correct as in recessionary gap economy is producing below potential level of GDP. This can be reduced by raising the GDP level and shifting the AD to its right by raising government expenditure and reducing taxes.

3) Keynes argued that short run is more important phase for the economy and may be we need government support in short run to boost the economy. Thus option C is correct.

4) Increase in fiscal policy can be regarded as that through which AD can be raised, among the option only option D is correct.

5) Option A is correct as AD = C + I + G + Exports - Imports

Thus reducing exports would shift AD backward.

6) Government cuts its spending and raises the taxes when there is high deficits in the economy and they needs to cut it. Thus option D is correct.

7) Option C is correct because expectation can lead to rise in spending of people now which raises the AD to its right.

8) Option A is correct as someone's expenditure is other income. Expenditure multiplier shows the rise in production level from expenditure raised.

9) If the US produced goods is less expensive, people from abroad will demand the products from U.S which will raise the exports from US, thus option C is correct.

10) Option D is correct as expansionary fiscal policy raises the AD level in the economy.