Fiscal Policy and Aggregate Demand
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Questions and Answers

What happens to the AD curve when Non-price determinants of Aggregate Expenditure change?

  • Remains unchanged
  • Becomes parallel to the AS curve
  • Shifts left (correct)
  • Shifts right

    • When Government Spending (G) decreases, what happens to the AD curve?

  • Becomes steeper
  • Shifts left (correct)
  • Shifts right
  • Remains unchanged

    • What is the effect of an increase in Government Spending (G) on Aggregate Expenditure (AE)?

  • AE remains unchanged
  • AE becomes negative
  • AE decreases
  • AE increases (correct)

    • What is the name of the range on the Aggregate Supply Short Run curve where prices and output change?

    <p>Mixed Range</p> Signup and view all the answers

    What happens when the supply of bonds shifts to the right?

    <p>More people want to sell bonds</p> Signup and view all the answers

    What is the result of an increase in Bond Tax (BT) on Consumption and Investment?

    <p>Consumption and Investment decrease</p> Signup and view all the answers

    What is the effect of an increase in government spending on the aggregate demand curve?

    <p>It shifts the curve to the right</p> Signup and view all the answers

    What happens to the interest rate when the price of bonds increases?

    <p>It decreases</p> Signup and view all the answers

    What is the name of the phenomenon where industries reach full capacity before the economy reaches full employment?

    <p>Bottleneck Industries</p> Signup and view all the answers

    What is the name of the person who buys a bond?

    <p>Bond holder</p> Signup and view all the answers

    What is the effect of a decrease in aggregate demand on the economy?

    <p>It leads to recession</p> Signup and view all the answers

    What is the formula for calculating the interest rate?

    <p>Interest payment / how much you paid for it</p> Signup and view all the answers

    When prices of production decrease, what happens to the ASS curve and the variables of the economy?

    <p>ASS curve shifts right, output and employment increase</p> Signup and view all the answers

    What is the primary objective of the government's fiscal policy in addressing a demand shift to the right?

    <p>Decrease government expenditure</p> Signup and view all the answers

    What is the consequence of a decrease in wages in the economy?

    <p>Decrease in output, increase in unemployment, and lower prices</p> Signup and view all the answers

    What is the term used to describe a situation where an economy is experiencing both recession and inflation?

    <p>Stagflation</p> Signup and view all the answers

    What is the major challenge in addressing stagflation?

    <p>Lower unemployment, higher inflation</p> Signup and view all the answers

    What is the primary function of money in an economy?

    <p>To facilitate exchange and payment for goods and services</p> Signup and view all the answers

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