A46-Phillips Curve
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1. EXPANSIONARY FISCAL POLICY
Suppose government policy makers want to increase GDP because the economy is not operating at its potential. They can increase aggregate demand by increasing government spending, lowering taxes or a combination of both.
Which of the images below is the correct graph for an increase in aggregate demand? *
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For the answer above, why did you make that choice? *
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(A) What happens to the price level in the short run? ____________________ *
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(B) What happens to real GDP in the short run? ____________________ *
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(C) What happens to the rate of unemployment in the short run? ____________________ *
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(D) The Federal Reserve can use monetary policy to try to stimulate the economy. It can encourage bank lending by ______________ bonds on the open market, _______________ the discount rate and/or ______________ the reserve requirements. *
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Read this before you continue...
Now go back and read what you just skipped--ridiculous.
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