SECTION Print L Use the graph below to answer questions 6 -10: Price Level SRAS

Question

SECTION Print L Use the graph below to answer questions 6 -10: Price Level SRAS AD ON QE Real GDP 6. The economy represented by the above graph is experiencing a(n) a. monetary gap. b. structural gap. d. inflationary gap. 7. Afisca/policy solution to this problem might include: a. increasing taxes. b. increasing government expenditures. decreasing the federal funds rate target. decreasing the discount rate. c. d. 8. A monetary policy solution to this problem might include: a. increasing taxes. b. increasing government expenditures. c. increasing the federal funds rate target. d. decreasing the discount rate. 9. To help alleviate this situation, the President and Congress might: a. decrease tax rates for each income tax bracket. b. increase the amount of time an unemployed worker can collect benefits. c. decrease the number and amount of tax deductions that can be taken by the wealthy d. increase funding to build and improve interstate highways. 10. To help alleviate this situation, the Federal Reserve would most likely: a. raise the required reserve ratio. b. lower the federal funds rate target. c. conduct an open market purchase of government bonds. d. conduct an open market sale of government bonds. Chapter 11 Assignments 230

Explanation / Answer

6) Option d is correct (Qe > Qn, this is an inflationary gap)

7) Option a is correct (Increasing taxes would shift the AD curve to the left)

8) Option c is correct (increasing the federal funds rate target would also shift the AD curve to the left)

9) Option c is correct (decreasing the number and amount of tax deductions would shift the AD curve to the left)

10) Option d is correct (open market sale of government bonds would decrease the money supply and shift the AD curve to the left)

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