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AP Econ Unit 3 Economic Thought and Fiscal Policy

Quiz by Mark Stegall

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12 questions
Show answers
  • Q1
    An important assumption in Keynesian theory is that
    Price rigidity will cause downturns in the economy to self-correct.
    When aggregate demand is inadequate, prices will fall.
    Prices are rigid downward and decreases in aggregate demand will lead to an increase in unemployment.
    When interest rates are high, government needs more money.
    30s
  • Q2
    According to Keynesian analysis, if government expenditures and taxes are increased by the same amount, which of the following will occur?
    Unemployment will increase
    Aggregate demand will increase
    Aggregate supply will increase
    Aggregate supply will decrease
    30s
  • Q3
    A fiscal stimulus works to close a recessionary gap by shifting the
    AD curve leftward and the AS curve lefward
    AS curve leftward
    AD curve leftward
    AD curve rightward
    30s
  • Q4
    Income taxes create a wedge between the wage rate paid by firms and the wage rate workers take home.
    true
    false
    True or False
    30s
  • Q5
    An income tax hike decreases the supply of labor but has no effect on employment or potential GDP
    false
    true
    True or False
    30s
  • Q6
    An income tax cut increases potential GDP by shifting the nation's production function upward.
    false
    true
    True or False
    30s
  • Q7
    Taxes on interest income can drive a wedge between the interest rate borrowers pay and in the interest rate lenders receive
    true
    false
    True or False
    30s
  • Q8
    According to classical economists, which of the following will occur to move this economy to long-run equilibrium
    Sticky wages will prevent wages from falling requiring the need for government action
    Deficit government spending should be used to shift aggregate demand to the right
    Autonomous consumption will cause aggregate demand to increase
    Wages will decrease causing aggregate supply to increase
    30s
  • Q9
    All the following are true regarding the horizontal portion of the short-run aggregate supply curve except
    It is used by Keynesian economists to show that wages are not flexible
    It occurs when an economy is at the Natural Rate of Unemployment
    It suggests that increases in aggregate demand can occur without increasing price level
    It most likely occurs when an economy is in a recession
    30s
  • Q10
    According to the short-run Phillips curve, an increase in inflation will accompany
    an increase in interest rates
    a decrease in net exports
    a decrease in unemployment
    a recession
    30s
  • Q11
    Which of the following is an example of expansionary fiscal policy?
    A decrease in personal income tax rates
    An Increase in the money supply to decrease interest rates
    A decrease in government expenditures on public works programs
    A decrease in the money supply by an increase in the reserve requirement
    30s
  • Q12
    Which of the following is the best example of a non-discretionary fiscal policy to combat demand-pull inflation?
    Decrease in government spending on national defense
    increase in the federal funds rate
    A progressive income tax system
    Crowding out
    30s

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