Refer to the above diagram. A contractionary fiscal policy can best be represented by a:
A. shift in the aggregate demand curve from AD1 to AD2.
B. movement along the aggregate demand curve.
C. shift in the aggregate demand curve from AD1 to AD3.
D. shift in the aggregate demand curve from AD3 to AD2.
Answer: D
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When the government sets a price floor which is above the equilibrium price
A) a surplus will develop. B) a shortage will develop. C) the equilibrium price will be maintained. D) a price ceiling will follow.
When total expenditures exceed the economy's potential GDP, the proper fiscal policy is to
a. increase transfer payments to the poor and elderly. b. cut personal income tax rates. c. decrease government purchases. d. increase purchasing power.
In January the price of widgets was $1.00, and Wendy's Widgets produced 80 widgets. In February the price of widgets was $1.50, and Wendy's Widgets produced 110 widgets. In March the price of widgets was $2.00, and Wendy's Widgets produced 140 widgets. The price elasticity of supply of Wendy's Widgets was about
a. 0.79 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00. b. 1.27 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. c. 0.79 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00. d. 1.27 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00.
Vertical equity states that taxpayers with a greater ability to pay taxes should
a. contribute a decreasing proportion of each increment in income to taxes. b. contribute a larger amount than those with a lesser ability to pay. c. be less subject to administrative burdens of a tax. d. be less subject to tax distortions that lead to deadweight losses.