Test Prep For AP® Courses
Which of the following taxes is NOT a component of federal tax receipts?
Which of the following is an example of a contractionary fiscal policy?
- increasing income taxes
- increasing government spending on national defense
- increasing health care spending
- decreasing the money supply
- beginning a new federal infrastructure project
Draw an aggregate demand curve, short-run aggregate supply curve, and long-run aggregate supply curve consistent with an economy currently in a recession.
- The first spending categories that increase during a recession are automatic stabilizers. List one example of an automatic stabilizer and explain how it helps prevent a recession from getting worse.
- List and explain one discretionary expansionary fiscal policy that government might take to move the economy back to its long run equilibrium.
- Using the diagram you drew, illustrate the effects of the policy you outlined in part (b) on the equilibrium price level and real GDP.
- One criticism of expansionary fiscal policy is the crowding out argument. Explain how crowding out works in a few sentences.