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AP Macroeconomics Pol 1 A a Define Fiscal Policy and Related Terms B Explain Using Graphs As Appropriate the Short Run Effects of a Fiscal Policy Questions

Analyse how government spending, taxes, and transfers shift aggregate demand, close output gaps, and change output, prices, and employment.

Syllabus
Effective Fall 2022
Course
AP Macroeconomics

Exam points

  • distinguish government spending, taxes, and transfers and explain their direct or indirect effects on AD
  • choose expansionary fiscal policy for a recessionary gap and contractionary policy for an inflationary gap
  • shift AD on an AD-AS graph and trace short-run changes in real output, the price level, and employment
  • calculate the government-spending change needed to close an output gap using the spending multiplier
  • calculate the tax change needed to close an output gap using the tax multiplier

AP Macroeconomics Pol 1 A a Define Fiscal Policy and Related Terms B Explain Using Graphs As Appropriate the Short Run Effects of a Fiscal Policy Questions 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.

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