What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?
What will be an ideal response?
In the basic aggregate demand and aggregate supply model, contractionary fiscal policy is illustrated by a leftward shift of the aggregate demand curve, with the short-run aggregate supply curve and long-run aggregate supply curve remaining stationary. The dynamic aggregate demand and aggregate supply model takes into account the economy experiencing continuing inflation from year to year and the economy experiencing long-run growth. In the dynamic model, contractionary fiscal policy is illustrated by a rightward shift of the aggregate demand curve which is less than the rightward shifts of the short-run aggregate supply curve and the long-run aggregate supply curve.
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A period when overall inflation rates are positive but falling is called:
A. disinflation. B. deflation. C. inflation. D. zero price level.
When the government steps in to help determine prices, it is called
a. price ceilings. b. price floors. c. equilibrium prices. d. price control.
In a dual economy, it is generally the case that the majority of the population works in the:
A. market economy. B. international sector. C. traditional (barter) economy. D. manufacturing sector.
Although GDP is not the same as economic well-being, high levels of GDP are positively correlated with all of the following except:
A. longer life expectancies. B. higher rates of infant mortality. C. higher material standards of living. D. higher rates of literacy.