What is fiscal policy? What is the relationship between fiscal policy and the federal budget?
Fiscal policy is using the government's spending and taxing authority to affect output, prices, and employment. The federal budget is an indicator of the state of fiscal policy. Budget deficits exist when expenditures exceed revenues; budget surpluses occur when government revenues exceed spending.
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In the above figure, if initial equilibrium is at point A and there is a fully anticipated increase in aggregate demand from AD1 to AD2 due to an anticipated increase in the money supply, then
A) the price level will shift to P2 in the long run. B) the economy will move directly from point A to point C without passing through point B. C) the price level will shift to P2 in the short run. D) the economy will move directly from point A to point B, and will remain at point B in the long run.
Which of the following would increase the level of planned real investment?
A) an expectation of higher future profits B) an expectation of higher future costs C) an increase in business taxes D) an increase in the interest rate