Expansionary fiscal policy: A. Increases the budget surplus B. May decrease the

Question

Expansionary fiscal policy: A. Increases the budget surplus B. May decrease the debt to GDP ratio C. Will have no impact on the price level D. Tends to reduce the level of consumption Which of the following is not a flow out of the household sector in the circular flow model? A. Saving B. Import expenditure C. Tax expenditure D.Export expenditure If unplanned inventories are rising, aggregate supply exceeds aggregate demand. True False Paradox of thrift is consistent with falling aggregate supply. True False

Explanation / Answer

1. B. May decrease the debt to GDP ratio

Expansionary fiscal policy includes increase in government spending and decrease in taxation. Decrease in taxation and increase in spending does not increase the budget surplus of government. This policy increases the flow of money due to this price will increase. Reduction in taxation increases the level of consumption.

2. D.Export expenditure

Because under export expenditure, foreigners pay domestic producers for their good.

3. True

When producers are left with more inventories then, to sell it they supply more and as a result, aggregate supply exceeds aggregate demand.

4. False.

Paradox of thrift occurs when increase in people saving decreases the economic growth of a country. When people saves more then demand by households decreases and AD shifts leftwards irrespective of AS.

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