1 As a tool of fiscal policy, one advantage of automatic stabilizers is that they (2 points) respond to the specific circumstances of an economy as it changes with deliberation prevent the possibility of runaway inflation reduce the amount that the government has to spend require no new legislation to respond to a change in aggregate demand maintain tax revenues during recessionary periods to fund government spending

2 A progressive tax system is a type of a(n) ________ because it helps increase ________ and maintain aggregate demand during times of economic recession. (2 points) discretionary policy; disposable income automatic stabilizer; tax revenue automatic stabilizer; disposable income discretionary policy; transfer payments monetary policy; money supply

3 When the government wants to ________ the economy, it will ________ taxation to help ________ aggregate demand and output. (2 points) expand; decrease; increase expand; increase; decrease contract; decrease; increase contract; decrease; decrease expand; increase; increase

4 How can an expansionary fiscal policy be useful in an economy? (2 points) Decreasing money supply can help relieve inflationary pressures in the economy. Increasing tax rates can help relieve inflationary pressures in the economy. Decreasing tax rates can help relieve inflationary pressures in the economy. Increasing government expenditures can help relieve recessionary pressures in the economy. Increasing money supply can help relieve recessionary pressures in the economy.

5 Suppose an economy is experiencing a positive demand shock. What will happen in the long run if the government doesn't intervene? (2 points) wages decrease; AD decrease; output decrease; unemployment decrease wages increase; AD increase; output increase; unemployment increase wages increase; AS decrease; output decrease; return to full employment wages decrease; AS increase; output increase; return to full employment wages increase; AS decrease; output increase; unemployment increase

6 What would be the short-run effects of a decrease of household consumption on an economy that was in long-run macroeconomic equilibrium? (2 points) A decrease in the price level, a decrease in unemployment, and a decrease in real output An increase in the price level, a decrease in unemployment, and an increase in real output A decrease in the price level, an increase in unemployment, and a decrease in real output An increase in the price level, a decrease in unemployment, and an increase in real output A decrease in the price level, an increase in unemployment, and an increase in real output

7 Which of the following would be the result of an increase in private investment in an economy due to favorable interest rates and expectations in the short run? (2 points) Output would decrease, aggregate demand would decrease, and unemployment would decrease. Output would increase, aggregate demand would increase, and unemployment would increase. Output would decrease, aggregate demand would decrease, and unemployment would increase. Output would decrease, aggregate demand would increase, and unemployment would increase. Output would increase, aggregate demand would increase, and unemployment would decrease.

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