1.Suppose an economy is in a recessionary gap of $200 million. The government decides to increase government spending and decrease taxes by the same amount. This action will cause which of the following to happen in this economy, given no other changes?
Group of answer choices
AD will not change due to both the government spending increase and the cut in taxes.
AD will not increase to close the gap because there is a decrease in taxes.
There will be a budget surplus and a decrease in the national debt.
There will be a budget deficit and an increase in the national debt.
2. To close an inflationary gap of $50 million in an economy with an MPC of 0.8, the government should _______.
Group of answer choices
Increase taxes by $10 million or decrease government spending by $12.5 million
Increase taxes by $12.5 million or decrease government spending by $10 million
Decrease taxes by $12 million and increase government spending by $10 million
Increase taxes by $12.5 million and decrease government spending by $10 million
3. To close a recessionary gap of $100 million in an economy with an MPC of 0.75, the government should ________.
Group of answer choices
Increase taxes by $25 million
Increase spending by $25 million
Increase spending by $50 million
Decrease taxes by $25 million
4. Classical economists argue that when an economy is experiencing a recessionary gap, the following will occur:
Group of answer choices
SRAS will shift right as resource prices decrease.
LRAS will shift right as workers become more productive.
SRAS will shift right as resource prices increase.
The government will use fiscal policy to increase AD.
5. New technology that increases overall labor productivity is introduced into an economy. What happens in this economy?
Group of answer choices
SRAS shifts left, price level decreases, and output decreases.
SRAS increases, price level decreases, and output increases.
SRAS decreases, price level increases, and output decreases.
LRAS shifts left, price level decreases, and output decreases.
