Question

15) The "nalve" Keynesian model is unrealistic because it A) Assumes that AS is upward sloping when it is more probably horizontal. B) Assumes that the price level decreases as AD increases. C) Does not account for changes in output due to the multiplier. D) Does not take into account probable changes in the price level as the economy 均 approaches full employment. 16) If the recessionary GDP gap is $500, then the proper fiscal stimulus when faced with an 16) upward-sloping AS curve is to A) Shift the AS curve rightward by less than $500 B) Shift the AD curve rightward by $500. C) Shift the AD curve rightward by more than $500. D) Shift the AD curve leftward by $500. 17 If aggregate demand increases by the amount of the recessionary GDP gap and aggregate 1)_ supply is upward-sloping A) An AD surplus will occur. B) An inflationary GDP gap will develop. C) A recessionary GDP gap will still exist. D) The economy will move to full employment. 18) In a diagram of aggregate demand and supply curves, the GDP gap is measured as the 18) A) Horizontal distance between the aggregate demand necessary to achieve full employment and the aggregate demand curve at equilibrium output. B) Vertical distance between the equilibrium output and the full-employment output. C) Horizontal distance between the equilibrium output and the full-employment output. D) Vertical distance between the equilibrium price and the price at which the aggregate demand would intersect aggregate supply at full employment. 19) 19) Which of the following will most likely provide fiscal stimulus to the economy? A) Decreasing government spending on goods and services. B) Increasing transfer payments. C) Increasing taxes. D) Higher interest rates. 20) 20) Which of the following is an income transfer? A) Unemployment benefits paid to a factory worker who was laid off. B) A new highway built by the federal government. C) Free medical care made available to the poor by a private physician. D) A gift of money from a parent to a child.
I’m lost on all of these can some one please explain them. ( practice test )

Answer 1

15) D. This is because the model keeps price level fixed when the economy reaches full employment (Horizontal AS)

16) C. This is because when AD shifts to the right in case of upward sloping AS, some of the increase is lost due to increasing price level.

17) C. Again because this shift is not sufficient to cover the entire recessionary gap when AS slopes upwards and reduce some of the increase in GDP

18) C. This is because recessionary gap is equal to full employment GDP and current GDP

19) B. When transfer payments like unemployment insurance are increased, they increase disposable income and consumption resulting in multiplier effect

20) A.