Figure 2 Price level LRAS SRAS AD Real GDP 21. Refer to Figure 2. In the graph a
ID: 1115266 • Letter: F
Question
Figure 2 Price level LRAS SRAS AD Real GDP 21. Refer to Figure 2. In the graph above, if the economy is at point A, an appropriate fiscal policy by Congress and the president would be to a) b) c) d) e) lower the discount rate of interest execute an open market sale of government securities increase government transfer payments increase marginal income tax rates None of the above 22. Refer to Figure 2. In the graph above, if the economy is at point A, an appropriate fiscal policy by Congress and the president would be to a) b) c) d) e) decrease the required reserve ratio sell government securities increase government expenditures decrease transfer payments None of the aboveExplanation / Answer
21.
Since at point A, economy is in short run equilibrium because AD and SRAS cuvre is equal at point A.
But for achieving long run equilibrium Congress and president need to use expansionary fiscal policy which would shift AD curve rightward and at new equilibrium points Las, SRAS and AD curve intersects each other. An increase in government transfer payment are examples of expansionary fiscal policy.
Hence option c is the correct answer.
22.
Since at point A, economy is in short run equilibrium because AD and SRAS cuvre is equal at point A.
But for achieving long run equilibrium Congress and president need to use expansionary fiscal policy which would shift AD curve rightward and at new equilibrium points LRAS, SRAS and AD curve intersects each other. An increase in government expenditure are examples of expansionary fiscal policy.
Hence option c is the correct answer.
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