AP Macroeconomics 3.8: Fiscal Policy
Analyze expansionary and contractionary fiscal policy, calculate multiplier effects, and evaluate government spending, taxes, and transfers.
- Syllabus
- Effective Fall 2025
- Course
- AP Macroeconomics
Covered syllabus points
3.8 Fiscal Policy question 1
[Maximum number: 1]
Assume that Nepal is in long-run macroeconomic equilibrium and has an open economy.
Assume that at the short-run equilibrium shown on your graph in part B, Nepal is
experiencing a 400 million rupee output gap. Policymakers in Nepal want to use
discretionary fiscal policy to return the economy to full employment, and the marginal
propensity to consume is 0.75. Calculate the minimum change and state the direction of
change in government spending required to completely close the output gap in the short run.
Show your work.
| C Point 4 | Calculate the minimum change in government spending as a decrease of 100 million rupees and show your work. Min Change =(1−0.75)1−400 million rupees =4−400 million rupees =−100 million rupees | 1 point |
|---|
3.8 Fiscal Policy question 2
[Maximum number: 1]
Which of the following is true about changes in tax rates, changes in the level of government expenditures, and changes in the money supply?
A
They are automatic stabilizers.
B
They are tools of discretionary fiscal policy.
C
They have different lag times between implementation of a policy and its effects on aggregate demand.
D
They are favored equally by both classical and Keynesian economists to fine-tune the economy.
E
All are controlled by the Federal Reserve system.
C
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