Please answer all questions showing full explanation

nation Topic 3.8- Fiscal Policy 1. Define expansionary fiscal policy. 3. Explain why an increase in government spending will lead to more total spending than a decrease in taxes by the same amount. 2. Define contractionary fiscal policy. Use the graph to answer the questions to the right. Assume | 4. Is there a recessionary gap or inflationary gap? wages and resource prices are flexible. Price Level LRAS 5. What happens to price level and output in the long SRAS run if no policy action is taken? 6. Assume instead that the government decides to use fiscal policy. Identify two policies that could close the PL1 gap. 7. If the MPC is .5, what is the least amount of government spending that could close the gap? AD 8. If the MPC is .5, what is the least amount the $150 $200 RGDP (ia bilions) government could cut taxes to close the gap? Topic 3.9- Automatic Stabilizers 9. Assume instead that the MPC is .9. What is the least 1. Define discretionary fiscal policy. amount of government spending that could close the gap? 2. Define non-discretionary fiscal policy. 10. Would an increase in private savings increase or decrease the effectiveness of fiscal policy? 3. Identify three different examples of automatic stabilizers. 11. Why are there lags when the government uses discretionary fiscal policy? Unit Review True or False: Scenario Change in 1. An increase in expected inflation will decrease the AD or AS for short-run aggregate supply. 8. Government uses 2. An increase in interest rates will increase investment and expansionary fiscal policy aggregate demand. 9. No policy when there is a 3. The spending multiplier is weaker than the tax multiplier. recession 4. Fiscal policy includes government spending and taxation. 10. Government increases taxes on consumers 5. If the MPS is .2 the tax multiplier is 4. 11. There is a decrease in 6. When the MPC increases, the spending multiplier imports decreases. 12. Positive output gap. Jacob Clifford is very attractive. Government takes no policy