Q4. If the economy is in a recessionary period, appropriate policies to pursue may include:

• an income tax cut that shifts the AD curve to the right.
• a reduction in government spending that shifts the AD curve to the left.
• new business investment taxes that shift the AD curve to the left.

Q5.What term is used to describe the maximum output that an economy can produce, in the context of its existing resources, market and legal institutions?

• GDP deflator
• potential GDP
• aggregate supply

Q6. Due to the wealth effect, an increase in the price level will cause

• consumer spending to decline.
• consumers to save less and spend more.
• consumers' real wealth to increase.