A recession can be caused by:
Answer(s): D
Choice "d" is correct. Both choices "b" and "c" can cause a recession. A recession is defined as a period of falling GDP and rising unemployment. GDP will fall if there is a decrease in aggregate demand or a decrease in aggregate supply.Choice "a" is incorrect. An increase in aggregate demand will cause GDP to increase NOT decrease.Choice "b" is incorrect, per the above Explanation.Choice "c" is incorrect, per the above Explanation.
A period during which real GDP is rising and unemployment is falling is called a(n):
Answer(s): A
Choice "c" is correct. During an expansion, real GDP is rising and unemployment is falling. Choice "a" is incorrect. A recession is when real GDP is falling NOT rising. Choice "b" is incorrect. A peak is the highest point of economic activity. It is the point where real GDP is at its highest level in the cycle and unemployment is at its lowest level in the cycle. Choice "d" is incorrect. A trough is the lowest level of economic activity. It is the point where real GDP is at its lowest level in the cycle and unemployment is at its highest level in the cycle.
Which of the following might be considered the most expansionary set of fiscal policies?
Answer(s): B
Choice "b" is correct. Expansionary fiscal policy involves increasing government purchases and/or decreasing taxes. Both increases in government spending and decreases in taxes cause the aggregate demand curve to shift right and thus cause real GDP (output) to increase. Choice "a" is incorrect. An increase in taxes is an example of contractionary fiscal policy. Choice "c" is incorrect. An increase in the money supply is expansionary monetary policy (not fiscal policy).Choice "d" is incorrect per above Explanation.
An increase in government spending will tend to cause:
Choice "b" is correct. An increase in government spending causes an increase in aggregate demand (i.e., causes the aggregate demand curve to shift right). As a result, an increase in government spending causes real GDP to rise and unemployment to fall.Choice "a" is incorrect. Real GDP will rise, not fall.Choice "c" is incorrect. Unemployment will fall, not rise.Choice "d" is incorrect. Real GDP will rise, not fall.
An increase in the personal income tax will tend to cause:
Choice "a" is correct. An increase in the personal income tax will cause a decrease in aggregate demand (i.e., causes the aggregate demand curve to shift left). As a result, an increase in taxes causes real GDP to fall and unemployment to rise.Choice "b" is incorrect. Real GDP will fall, not rise.Choice "c" is incorrect. Real GDP will fall, not rise.Choice "d" is incorrect. Unemployment will rise, not fall.
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