Review for Fiscal Policy Unit 3 Exam

Front

Congress increases taxes on the rich. What is the effect on Aggregate Demand?

Back

Decrease AD

Front

Congress cuts taxes on the middle class. What is the likely effect on aggregate demand?

Back

Increase AD

Front

Oil prices fall amid rumors of a new discovery in Alaska. What is the likely economic effect?

Back

Increase SRAS

Front

Productivity increases

Back

Increase SRAS

Front

Productivity falls for the third quarter in a row. Options: Increase AD, Increase SRAS, Decrease AD, Decrease SRAS

Back

Decrease SRAS

Front

Congress decreases unemployment benefits. What is the likely effect on aggregate demand?

Back

Decrease AD

Front

Baby boomers retire in greater numbers. What is the effect on SRAS?

Back

Decrease SRAS

Answer explanation

Retirees might have less income, which means less consumer spending and decrease in AD, but many retirees have more income in from their investments than their salaries so this isn't a sure thing! What IS known is that if lots of people retire, then there are fewer people working and that means decreased productivity.

Front

Wages rise due to higher labor union contracts. What is the effect on the economy? Options: Increase AD, Increase SRAS, Decrease AD, Decrease SRAS

Back

Decrease SRAS

Front

Congress raises taxes on businesses. What is the effect on the economy? Options: Increase AD, Increase SRAS, Decrease AD, Decrease SRAS

Back

Decrease SRAS

Front

Exports rise to an all time high. What is the effect?

Back

Increase AD