Based on the figure below. Starting from long-run equilibrium at point C, an increase in government spending that increases aggregate demand from AD to AD1 will lead to a short-run equilibrium at point ________ creating _____gap. 
A. D; an expansionary
B. B; no output
C. B; expansionary
D. A; a recessionary
Answer: A
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Which of the following contributed to the turn-around in the U.S. government budget from a surplus in the early 2000s to record deficits by the end of the decade?
A. An increase in tax revenues because of a recession. B. An increase in business saving. C. An increase in government purchases on homeland security and wars. D. An increase in household saving.
The Fed has complete control over the money supply
Indicate whether the statement is true or false
Assume that the world price of Commodity X is $9 per unit while its domestic price is $8, and the marginal cost of production is $6 per unit. If the government imposes a price ceiling of $7 on domestic output:
a. the import of Commodity X from the world market would stop. b. the world price of Commodity X would decline. c. a surplus of Commodity X would accumulate in the domestic market. d. a shortage of Commodity X would be observed in the domestic market.
________ holds that those with equal ability to pay should bear equal tax burdens.
A. Vertical equity B. The benefits-received principle C. Progressive tax theory D. Horizontal equity