Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
AP Economics Chapter 12 Study Guide – TB 1. Which are contractionary fiscal policies? A) increased taxation and increased government spending B) increased taxation and decreased government spending C) decreased taxation and no change in government spending D) no change in taxation and increased government spending 6. You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion; (2) investment = $50 billion; (3) government purchases = $100 billion; and (4) net export = $20 billion. If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with the goal of achieving price level stability? A) increase government spending and taxes B) decrease government spending and taxes C) decrease government spending and increase taxes D) increase government spending and decrease taxes 2. If the Congress passes legislation to decrease government spending to control demand-pull inflation, then this would be an example of a(n): A) supply-side fiscal policy. B) expansionary fiscal policy. C) contractionary fiscal policy. D) nondiscretionary fiscal policy. 7. If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary the: A) smaller is the economy's MPS. B) larger is the economy's MPS. C) smaller is the economy's MPC. D) larger is the unemployment rate. 3. In an aggregate demand and aggregate supply graph, an expansionary fiscal policy can be illustrated by a: A) leftward shift in the aggregate demand curve. B) rightward shift in the aggregate demand curve. C) leftward shift in the aggregate supply curve. D) change in the price level. 8. In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is .4, then it could increase government spending by: A) $10 billion. B) $20 billion. C) $31.25 billion. D) $40.50 billion. 9. In an economy, the government wants to decrease aggregate demand by $24 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPC is .75, then it could increase taxes by: A) $6 billion. B) $8 billion. C) $10 billion. D) $12 billion. 4. Refer to the above diagram. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to improve the condition of the economy? A) decrease aggregate demand by increasing taxes B) increase aggregate demand by decreasing taxes C) decrease aggregate supply by increasing taxes D) increase aggregate demand by increasing government spending 10. Which policy to finance the public debt might crowdout private spending? A) borrowing money from the public in the money market B) decreasing government spending C) creating new money D) decreasing taxes 5. Which combination of fiscal policy actions would be most stimulative for an economy in a deep recession? A) increase taxes and government spending B) decrease taxes and government spending C) increase taxes and decrease government spending D) decrease taxes and increase government spending 11. Due to automatic stabilizers, when income rises, government transfer spending: A) increases and tax revenues decrease. B) decreases and tax revenues increase. C) and tax revenues decrease. D) and tax revenues increase. Page 1 12. A new member of Congress notes that: "Personal income tax collections automatically fall and transfers and subsidies automatically rise as national income declines." This observation best describes how the personal income tax, and transfers and subsidies: A) serve as built-in stabilizers. B) produce the full-employment budget. C) cause crowding-out and reduce equilibrium GDP. D) contribute to the recognition lag with fiscal policy. 18. The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the net export effect suggests that net exports would: A) increase, thus decreasing aggregate demand and partially offsetting the fiscal policy. B) increase, thus increasing aggregate demand and partially reinforcing the fiscal policy. C) decrease, thus decreasing aggregate demand and partially offsetting the fiscal policy. D) decrease, thus increasing aggregate demand and partially offsetting the fiscal policy. 13. Actions by the Federal government that decrease the progressivity of the tax system: A) decrease the amount of government spending. B) increase the effects of automatic stabilizers. C) decrease the effects of automatic stabilizers. D) increase the amount of taxation. 19. The United States is experiencing inflation, so Congress adopts a contractionary fiscal policy to reduce inflation. The net export effect suggests that net exports would: A) decrease, thus decreasing aggregate demand and partially reinforcing the fiscal policy. B) decrease, thus increasing aggregate demand and partially offsetting the fiscal policy. C) increase, thus decreasing aggregate demand and partially reinforcing the fiscal policy. D) increase, thus increasing aggregate demand and partially offsetting the fiscal policy. 14. In Year 1, the actual budget deficit was $200 billion and the full-employment deficit was $150 billion. In Year 2, the actual budget deficit was $225 billion and the full-employment deficit was $175 billion. GDP was $1000 billion in Year 1 and $1005 billion in Year 2. It can be concluded that fiscal policy from Year 1 to Year 2 was: A) proportional. B) inflationary. C) contractionary. D) expansionary. 20. If the government adopts a fiscal policy that is: A) expansionary, then net exports are likely to expand and reinforce the effects of the fiscal policy. B) contractionary, then net exports are likely to decline and partially offset the effects of the fiscal policy. C) contractionary, then net exports are likely to rise and reinforce the effects of the fiscal policy. D) expansionary, then net exports are likely to decline and partially offset the effects of the fiscal policy. 15. If the full-employment budget deficit increases from $200 billion to $250 billion and GDP remains constant over the two years,: A) fiscal policy is expansionary. B) fiscal policy is contractionary. C) fiscal policy is neutral. D) the tax system is progressive. 16. Crowding-out is the notion that: A) since tax revenues vary directly with GDP, a rise in the level of GDP will increase the budget surplus and limit expansion. B) deficit financing will increase the demand for money, increase the interest rate, and reduce the level of investment spending in the economy. C) the full-employment budget is the best indicator of whether a budget deficit crowds out investment. D) the actual budget is the best indicator of whether a budget deficit crowds out saving. 21. Which cause-and-effect chain would best explain the reason for a decline in net exports? An expansionary fiscal policy: A) increases domestic interest rates and leads to an appreciation of the dollar that reduces net exports. B) decreases interest rates and leads to a depreciation of the dollar that reduces net exports. C) increases domestic interest rates and leads to a depreciation of the dollar that reduces net exports. D) decreases interest rates and leads to an appreciation of the dollar that reduces net exports. 17. An expansionary fiscal policy in the upsloping portion of the aggregate supply curve is: A) increased by the net export effect. B) decreased by the creation of new money. C) increased by the crowding-out effect. D) decreased by a rise in the price level. Page 2 22. Suppose the United States pursued a contractionary fiscal policy to reduce the level of inflation. The net export effect suggests that: A) private investment would decrease, thus decreasing aggregate demand and partially reinforcing the fiscal policy. B) private investment would decrease, thus increasing aggregate demand and partially offsetting the fiscal policy. C) net exports would increase, thus decreasing aggregate demand and partially reinforcing the fiscal policy. D) net exports would increase, thus increasing aggregate demand and partially offsetting the fiscal policy. 23. Supply-side economics can be described in terms of the aggregate demand and aggregate supply model as an attempt to shift: A) the aggregate supply curve to the left. B) the aggregate supply curve to the right. C) both the aggregate supply curve and the aggregate demand curve to the right. D) the aggregate supply curve to the right and the aggregate demand curve to the left. 24. A Congressional representative who calls for a decrease in tax rates to increase saving, investment, and economic growth would most likely be advocating a: A) contractionary fiscal policy. B) nondiscretionary fiscal policy. C) supply-side fiscal policy. D) proportional fiscal policy. 25. Refer to the above graph. If the economy is in initial equilibrium at AD1 and AS1 , then from a strict supply-side perspective a cut in taxes or tax rates would produce an equilibrium price and quantity of: A) P1 and Q1. B) P2 and Q2. C) P3 and Q3. D) P4 and Q4. Page 3