Please, respond to the following questions:

1. An example of automatic fiscal policy is

	a.	the unemployed automatically become eligible for unemployment benefits when they lose their jobs in a recession.
	b.	when interest rates automatically fall in a recession.
	c.	Congress passes a law during a recession that automatically extends unemployment benefits for those whose benefits will soon expire.
	d.	a and b
	e.	a, b and c

2. Suppose the economy is at a point below its physical production possibilities frontier but above its institutional production possibilities frontier. In response to this situation, Keynesian economists may propose that government enact __________ fiscal policy to correct this __________ gap by __________ government expenditures.

	a.	contractionary; inflationary; decreasing
	b.	expansionary; recessionary; increasing
	c.	expansionary; inflationary; increasing
	d.	contractionary; recessionary; decreasing
	e.	contractionary; inflationary; increasing

3. Suppose the economy's current AD and SRAS curves intersect to the right of Natural Real GDP. Keynesians might advise a policy of tax __________ to shift __________.

	a.	cuts; SRAS to the right
	b.	cuts; AD to the right
	c.	increases; AD to the left
	d.	increases; SRAS to the left

4.Crowding out suggests that

	a.	increases in government spending will close a recessionary gap.
	b.	increases in government spending may raise the interest rate, thereby reducing investment.
	c.	increases in consumption are always at the expense of saving.
	d.	high taxes reduce both consumption and saving.

5. Refer to Exhibit. The economy is currently at point 1. Suppose the federal government increases purchases and there is complete crowding out. As a result, the aggregate demand (AD) curve in the exhibit

LRAS SRAS 2 Price Level 3 AD Real GDP O ONSRAS, LRAS SRAS, SRAS, Price Level ADS AD2 AD1 Real GDPPrice SRAS Level K SRAS1 AD2 AD1 ON Real GDP O