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

question 36

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 24-6
-Refer to Figure 24-6.The government could close the existing output gap by

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

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Definitions:

Accrued Expense

Expenses that have been incurred but not yet paid or recorded in the ledgers.

Accrual Basis Accounting

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.

Cash Basis Accounting

An accounting method that records revenues and expenses when cash is actually received or paid, rather than at the time they are incurred.

Rental Payments

Periodic payments made by a lessee to a lessor for the use of a property, space, or equipment.