Explain how fiscal policy can correct a contractionary gap
What will be an ideal response?
A contractionary gap can be closed by an increase in aggregate demand. By increasing government spending or reducing taxes, aggregate demand increases, thereby raising the level of real GDP.
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In the above figure, of the quantities listed below, for which is the total deadweight loss the largest?
A) 0 units B) 10 units C) 20 units D) 30 units
In the above figure, at a price of $8, a perfectly competitive firm produces ________ and it ________
A) 0; incurs an economic loss B) 0; makes zero economic profit C) some output; makes zero economic profit D) some output; makes an economic profit
If the markets in the economy are characterized by rational expectations, then
A) predictable changes cause neither the AD nor the SAS curves to shift. B) predictable changes in monetary policy are ineffective in changing output. C) unpredictable monetary policy is ineffective in changing prices. D) unpredictable fiscal policy is ineffective in changing prices.
A reduction in world oil supplies is likely to cause
A) an increase in aggregate demand and a decrease in the equilibrium price level. B) a decrease in equilibrium price level and an increase in real Gross Domestic Product (GDP). C) an increase in equilibrium price level and an increase in real Gross Domestic Product (GDP). D) a reduction in aggregate supply, a rise in the equilibrium price level, and a fall in real Gross Domestic Product (GDP).