Tuesday, March 17, 2015

Fiscal Policy (2010 AP Multiple Choice Questions)

Fiscal Policy (2010 AP  Multiple Choice Questions)

Answer (A) Increasing government expenditures to build highways
All of the others are monetary policy.

Answer (B) It is the accumulation of past and current budget deficits and surpluses.

Answer (A) 
Lower business taxes mean lower costs for business. AS curve shifts right (input costs decrease, PL decreases) & MC curve shifts right, and to produce at profit max, (produce more) a business must higher more labor. In an imperfectly competitive firm price will decrease.

Answer (B) gov't borrowing to finance its spending decreases private sector investment.

 Answer (D) the automatic stabilizing effect of fiscal policy will be eliminated

Answer (C) decrease income taxes  and increase gov't spending by equal amounts.