Please match the following ideas and concepts with their definitions and example

Question

Please match the following ideas and concepts with their definitions and examples:

Choices - use a choice only once      

A.

When the current short-run equilibrium is to the right of the LRAS

B.

Government spending rises and taxes are held constant

C.

Government spending rises, taxes are held constant, and private spending diminishes

D.

When the current short-run equilibrium is to the left of the LRAS

Match each of the following to a choice

1.

Use Contractionary Fiscal Policy

Select A. When the current short-run equilibrium is to the right of the LRAS B. Government spending rises and taxes are held constant C. Government spending rises, taxes are held constant, and private spending diminishes D. When the current short-run equilibrium is to the left of the LRAS

2.

Crowding-out effect

Select A. When the current short-run equilibrium is to the right of the LRAS B. Government spending rises and taxes are held constant C. Government spending rises, taxes are held constant, and private spending diminishes D. When the current short-run equilibrium is to the left of the LRAS

3.

Indirect crowding out

Select A. When the current short-run equilibrium is to the right of the LRAS B. Government spending rises and taxes are held constant C. Government spending rises, taxes are held constant, and private spending diminishes D. When the current short-run equilibrium is to the left of the LRAS

4.

Use Expansionary Fiscal Policy

Select A. When the current short-run equilibrium is to the right of the LRAS B. Government spending rises and taxes are held constant C. Government spending rises, taxes are held constant, and private spending diminishes D. When the current short-run equilibrium is to the left of the LRAS

Choices - use a choice only once      

A.

When the current short-run equilibrium is to the right of the LRAS

B.

Government spending rises and taxes are held constant

C.

Government spending rises, taxes are held constant, and private spending diminishes

D.

When the current short-run equilibrium is to the left of the LRAS

Explanation / Answer

Answers:-

Use Contractionary Fiscal Policy = When the current short-run equilibrium is to the right of the LRAS

The economy is overheating and it should be brought back to its full GDP level.

Crowding-out effect = Government spending rises, taxes are held constant, and private spending diminishes

Indirect crowding out = Government spending rises and taxes are held constant

Use Expansionary Fiscal Policy = When the current short-run equilibrium is to the left of the LRAS

The economy is not at its potential and needs a boost to reach at LRAS / full GDP level.

Hope my solution solves your query.

Regards.

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