QUESTION 1 During which of the following situations would the government most li

Question

QUESTION 1 During which of the following situations would the government most likely implement an expansionary fiscal policy? A. when current output is above full-employment output B. when the economy is expanding at a rapid pace C. when inflation is at 10 percent per year D. when the current unemployment rate is below the natural rate of unemployment E. when the current unemployment rate is above the natural rate of unemployment QUESTION 2 fiscal Country X is in the midst of an expansion. The government is likely to pursue policy in order to shift the A. expansionary; long-run aggregate supply (LRAS) curve to the right B. expansionary; short-run aggregate supply (SRAS) curve to the right C. contractionary; aggregate demand (AD) curve to the right D. contractionary; aggregate demand (AD) curve to the left E. contractionary; short-run aggregate supply (SRAS) curve to the right QUESTION 3 Suppose that the economy is currently producing final goods and services worth $70 billion, potential GDP is $75 billion, and the government expenditure multiplier is 0.5. If the government decides to intervene to restore potential GDP, it should A. increase government purchases by S5 billion B. decrease government purchases by $7.5 billion C. increase government purchases by $2.5 billion D. decrease government purchases by $2 billion

Explanation / Answer

1) when cuurent unemployment level is greater than NRU then expansionary fiscal policy will imcrease the output which will lead to increase in employment.

2)D. Contractionary fiscal policy will shift the AD curve leftwarf

3)multiplier=1/1-mpc=1/1-0.5=2 thus increase in G by 2.5 billion will shift the Potential GdP by 5billion.

Ans is C

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