1 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0217511447/883758/ch30_q1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (20.0K)</a>]]> Q1 , but a significant decline in investment demand has pushed the economy into recession as shown by the decline in aggregate demand to AD2 . Currently, output is at Q3 and there is a negative GDP gap (Q3 – Q1 ) of $100 billion. If the multiplier is 5, which of the following would most likely move the economy back to its full potential?A) A tax cut of $20 billion B) Increased government spending of $20 billion C) A tax cut of $100 billion D) Increased government spending of $100 billion 2 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0217511447/883758/ch30_q2.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (24.0K)</a>]]> A) demand-pull inflation B) a cut in government spending C) a tax increase D) an expansionary fiscal policy 3 A) foreign individuals and institutions B) U.S. government agencies, including the Federal Reserve C) State and local governments D) U.S. banks and other financial institutions 4 A) increased government borrowing increases interest rates, causing a reduction in private investment B) it is accompanied by a cut in Social Security taxes as well C) the price level falls D) stock prices rise 5 A) Lower tax rates on corporate income B) Reducing or limiting personal deductions and credits when figuring personal income taxes C) Expanded spending on new domestic security programs D) Decreases in interest rates 6 A) A tax cut in a recession B) A tax increase during inflation C) An increase in government spending during a recession D) A decrease in government spending in a recession 7 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0217511447/883758/ch30_q7.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (22.0K)</a>]]> 1 represents the current level of expenditures and Q2 is the full-employment level of GDP, the government should undertake:A) an expansionary fiscal policy that reduces aggregate demand to AD2 B) an expansionary fiscal policy that reduces aggregate demand to AD3 C) a contractionary fiscal policy that reduces aggregate demand to AD2 D) b. a contractionary fiscal policy that reduces aggregate demand to AD3 8 A) automatically increase the size of deficits when the economy experiences demand-pull inflation B) avoid the problems associated with the administrative lag of discretionary fiscal policy C) automatically produce a budget that is balanced over the business cycle D) tend to offset the impact of discretionary fiscal policy 9 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0217511447/883758/ch30_q9.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (39.0K)</a>]]> A) A B) B C) C D) D 10 A) is financed by increasing the money supply, reducing interest rates and causing net exports to fall B) is financed by borrowing, raising interest rates and causing private investment to fall C) causes taxes to rise automatically, reducing consumption spending D) causes the price level to rise, reducing net exports
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