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Figure 14.5 Suppose the economy is in short-run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising. Using the static AD-AS model, the correct Fed policy for this situation would be depicted as a movement from
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C to B
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Table 14-1 The hypothetical information in the table shows what the values for real GDP and price level will be in 2015 if the Fed does not use monetary policy. Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2015?
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The Fed should lower the target for the federal funds rate
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Which of the following would be classified as fiscal policy?
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The federal government cuts taxes to stimulate the economy
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The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of
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Automatic stabilizers
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The largest and fastest-growing category of federal government expenditures is
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Transfer payments
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An increase in government purchases will increase aggregate demand because
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Government expenditures are a component of aggregate demand
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Expansionary fiscal policy involves
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Increasing government purchases or decreasing taxes
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Figure 15-1 An increase in taxes would be depicted as a movement from _____ using the static AD-AS model
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B to A
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Figure 15-1 Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the static AD-AS , this would be depicted as movement from
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A to B
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Figure 15-1 Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued. Using the static AD-AS model, this would be depicted as a movement from
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A to E
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If real GDP exceeded potential real GDP and inflation was increasing, which of the following would be an appropriate fiscal policy?
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An increase in taxes
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Figure 15-3 In the dynamic model of AD-AS, if the economy is at point A in year 1 and it is expected to go to point B in year 2, Congress and the president would most likely
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Increase taxes
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The multiplier effect refers to the series of
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Induced increases in consumption spending that result from an initial increase in autonomous expenditures
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A change in consumption spending caused by income changes is ______ change in spending, and a change in government spending that occurs to improve roads and bridges is _____ change in spending.
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An induced; an autonomous
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Which of the following would increase the size of the government purchases multiplier?
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A decrease in the amount saved by households from an increase in income
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