Which of the Following Is True Concerning Contractionary Fiscal Policy

question 37

Multiple Choice

Which of the following is true concerning contractionary fiscal policy?

• A)Contractionary fiscal policy is necessary to manipulate aggregate supply and maintain output.
• B)Contractionary fiscal policy results in recession.
• C)The purpose of contractionary fiscal policy is to slow down the economy by shifting the aggregate demand curve inward and removing pressure on price levels.
• D)Contractionary fiscal policy is appropriate when an output gap is being experienced.

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Definitions:

MR = MC

A condition in economics where marginal revenue equals marginal cost, often used to determine the optimal level of output in perfectly competitive markets.

ATC

Average Total Cost, which is the total cost divided by the quantity of output produced. It represents the per-unit production cost at various levels of output.

Earning A Profit

The financial gain realized when the total revenues generated from a business activity exceed the total costs associated with that activity.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing and able to purchase at various prices.