9. Since actual budget deficits surpassed 10 percent of GDP in 2009: A. fiscal p
ID: 1220790 • Letter: 9
Question
9. Since actual budget deficits surpassed 10 percent of GDP in 2009:
A. fiscal policy has become contractionary.
B. the deficits as a percentage of GDP have fallen, but fiscal policy has remained expansionary.
C. deficits as a percentage of GDP have continued to rise.
D. deficits as a percentage of GDP have remained constant but risen in dollar amounts.
Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD2, and that the full-employment level of output is Y. Because of the ratchet effect:
A. it is impossible to enact fiscal policy that will both reduce output to Y and reduce demand-pull inflation.
B. fiscal policy will need to be more contractionary to reduce output to Y than if no ratchet effect occurred.
C. tax increases will be more effective at reducing demand-pull inflation than cuts in government spending.
D. contractionary fiscal policy that shifts aggregate demand to AD1 will cause real GDP to fall below its full-employment level.
Refer to the diagrams. A decline in aggregate expenditures from AE2 to AE1 resulting from the real-balances, interest-rate, and foreign purchases effects would be depicted as:
A. a movement from A to C along aggregate demand curve AD1.
B. a movement from C to A along aggregate demand curve AD1.
C. a shift of aggregate demand from AD1 to AD2.
D. a shift of aggregate demand from AD2 to AD1.
In the diagram, a shift from AS3 to AS2 might be caused by an increase in:
A. business taxes and government regulation.
B. the prices of imported resources.
C. the prices of domestic resources.
D. productivity.
Explanation / Answer
Answers:- 9.) B. the deficits as a percentage of GDP have fallen, but fiscal policy has remained expansionary.
D. contractionary fiscal policy that shifts aggregate demand to AD1 will cause real GDP to fall below its full-employment level.
B. a movement from C to A along aggregate demand curve AD1.
D. productivity.
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