FREE AP MACRO Policies and Theories Questions and Answers
Which of the following is a tool of fiscal policy?
Fiscal policy involves government actions to influence the economy through changes in government spending and taxation. The other tools listed are part of monetary policy, managed by the central bank.
What happens to the aggregate demand curve when the government increases taxes?
Higher taxes reduce consumers' disposable income, leading to decreased consumption and investment, which shifts the aggregate demand curve to the left.
Which of the following is most associated with expansionary monetary policy?
When the central bank buys government securities, it injects money into the economy, lowering interest rates and encouraging borrowing and spending, which are goals of expansionary monetary policy.
Keynesian economists believe that during a recession, the government should:
Keynesians argue that during a recession, active government intervention is needed to stimulate demand. Increased spending and tax cuts boost aggregate demand and help reduce unemployment.
What is the primary goal of contractionary fiscal policy?
Contractionary fiscal policy, such as reducing government spending or increasing taxes, aims to decrease aggregate demand to control inflationary pressures in the economy.