Refer to the above figure. Suppose the relevant aggregate demand curve is AD2. If the government wants to use discretionary fiscal policy to close the existing gap, it should
A) decrease taxes.
B) increase taxes.
C) increase the money supply.
D) decrease government spending.
A
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What relationship is shown by a supply curve?
What will be an ideal response?
If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,000 on an income of $30,000, then over this range of income the tax is
A) regressive. B) proportional. C) progressive. D) There is insufficient information to answer the question.
Which of the following is not an argument in favor of reforming the tax laws to encourage saving?
a. Saving is a key determinant of long-run prosperity. b. Current tax laws discourage saving for the purpose of leaving a large bequest. c. The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. d. The tax code currently taxes some forms of capital income twice.
Which of the following is not a tool of monetary policy?
a. open market operations
b. reserve requirements
c. changing the discount rate
d. increasing the government budget deficit