Test Prep For AP® Courses


Which of the following taxes is NOT a component of federal tax receipts?

  1. payroll
  2. income
  3. corporate
  4. property
  5. excise

Which of the following is an example of a contractionary fiscal policy?

  1. increasing income taxes
  2. increasing government spending on national defense
  3. increasing health care spending
  4. decreasing the money supply
  5. 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.

  1. 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.
  2. List and explain one discretionary expansionary fiscal policy that government might take to move the economy back to its long run equilibrium.
  3. Using the diagram you drew, illustrate the effects of the policy you outlined in part (b) on the equilibrium price level and real GDP.
  4. One criticism of expansionary fiscal policy is the crowding out argument. Explain how crowding out works in a few sentences.