The Diagram Below Shows an AD/AS Model for a Hypothetical

question 42

Multiple Choice

The diagram below shows an AD/AS model for a hypothetical economy which is initially in a short-run equilibrium at point A. FIGURE 24-7 Refer to Figure 24-7.The government could close the existing output gap by

• A)increasing the net tax rate.
• B)decreasing the net tax rate.
• C)increasing government purchases.
• D)decreasing government transfer payments.
• E)implementing an expansionary fiscal policy.

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Definitions:

Consumption Bundle

A combination of goods and services that a consumer chooses to consume at a given time.

Budget Constraint

The limit on the consumption patterns of an individual or household based on their income and the prices of goods and services.

Feasible

Capable of being done or achieved; possible within a set of constraints or conditions.

Gallons of Gasoline

A measurement of gasoline volume, with one gallon equal to approximately 3.785 liters, commonly used in the United States for fuel transactions.