Refer to the above graph. Assume that the economy initially has a price level of P2 and output level Q2. The price level is flexible and the government decides to adopt a contractionary fiscal policy. What would most likely be the new equilibrium price level and output?
A. P2 and Q2
B. P1 and Q1
C. P2 and Q4
D. P1 and Q3
Answer: B
You might also like to view...
Based on the table above, the CPI for 2014 is
A) 105.1. B) 98.5. C) 5.0 percent. D) 100. E) 102.5.
All of the following make the use of fiscal policy less attractive EXCEPT
A) expansionary fiscal policy tends to cause inflation and offsets some of the increased consumer spending. B) that it cannot be effective, unless it is accommodated with expansionary monetary policy. C) the substantial margin of error in the value of the multiplier. D) the legislative lag, which is the time it takes for Congress and the President to pass and implement the measure. E) the crowding out effect, which is the decrease in private spending that occurs due to increased government spending.
To reduce cyclical unemployment the government might:
a) Increase the budget surplus b) Increase the balance of payments deficit c) Increase the budget deficit d) Reduce government expenditure
For the purposes of calculating GDP, investment includes:
A. purchases of stock. B. purchases of government bonds. C. the value of new residential construction. D. purchases of old automobiles.