23, Which of the following statements correctly describes what would follow if, when the economy is operating in long-run equilibrium, net exports begin to decrease? A An inflationary gap is created because the AD curve shifts to the right b. An inflationary gap is created because the SRAS curve shifts to the right C. An inflationary gap is created because potential GDP shifts to the left d. A recessionary gap is created because the SRAS curve shifts to the left c. A recessionary gap is created because the AD curve shifts to the left 24. Which of the following is a time lag that may reduce the effectiveness of fiscal policy? I. The period of time it takes a fiscal policy to actually take effect in the economy II. The period of time it takes economists, politicians and the public to recognize the economy is in a recessionary or inflationary period III. The period of time it takes policy-makers to agree on and pass fiscal legislation a. I only b. II only c. III only d. I and II only e. I, II and III 25. In an economy operating in the 'Keynesian' (i.e. horizontal) range of a short-run aggregate supply curve, an increase in the level of consumer wealth will cause the value of domestic output and the price level to change in which of the following ways? Output Price Level a. Decrease Increase b. Increase Increase C. Increase No change d. No change Increase e. No change No change 26. In order for a tax policy to serve as an automatic stabilizer, in which of the following ways must it cause the level of taxation to adjust during periods of economic instability? Recessionary Periods Inflationary Periods a. Taxation... Decreases Decreases b. Taxation... Decreases Increases c. Taxation... Increases Decreases d. Taxation... Increases Increases e. Taxation... Does not change Does not change