Exam skills Fiscal policy versus monetary policy 1.
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Transcript of Exam skills Fiscal policy versus monetary policy 1.
Exam skills
Fiscal policy versus monetary policy
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Example 1Suppose the government raises income taxes and issues bonds at the same time. Which of the following can best illustrate the overall effects of the above changes on price and output levels?
0 Y
SRAS
AD0AD1
A. B.
C.
D.
P
Y
SRAS0
AD0AD1
P
0
0 Y
AD
LRAS0P
0 Y
AD0
LRAS0
AD1
P
SRAS1
LRAS1 LRAS1
2
You should...1. Study the questions carefully
2. List the relevant information you have
3. Choose your answer strategically
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1. Study the questions carefullySuppose the government raises income taxes and issues bonds at the same time. Which of the following can best illustrate the overall effects of the above changes on price and output levels?
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Hint: More than one policy
Suppose the government raises income taxes and issues bonds at the same time. Which of the following can best illustrate the overall effects of the above changes on price and output levels?
1. Study the questions carefully
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TWO policies1.Raising income taxes2. Issuing bonds
2. List the relevant information you have
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PolicyEffect onAS curve
Effect onAD curve
Effect on Y
1. Raising income taxes
2. Issuing bonds
Overall effects
Suppose the government raises income taxes and issues bonds at the same time. Which of the following can best illustrate the overall effects of the above changes on price and output levels?
? Shiftsleftwards
?Shifts
leftwards
? Shiftsleftwards
(Contractionary)
(Contractionary)
Student A ONLY knows the following:
Suppose the government raises income taxes and issues bonds at the same time. Which of the following can best illustrate the overall effects of the above changes on price and output levels?b. Find the diagram with a decrease in Y.
Strategy 1: Possible choice strategya. Find the diagram(s) with a leftward shift in AD.
3. Choose your answer strategically
0 Y
SRAS
AD0AD1
A. B.
C.
D.
P
Y
SRAS0
AD0AD1
P
0
0 Y
AD
LRAS0P
0 Y
AD0
LRAS0
AD1
P
SRAS1
LRAS1 LRAS1
7
No
Yes
3. Choose your answer strategically
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Yes
No
Well done
Eliminate an option
Can you choose the best answer now?
Eliminate an option
Eliminate an option
No
No?!
Skip this question and try it later!
Can you choose the best answer now?
Strategy 2: Elimination method
PolicyEffect onAS curve
Effect onAD curve
Effect on Y
1. Raising income taxes
2. Issuing bonds
Overall effects
3. Choose your answer strategically
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Suppose the government raises income taxes and issues bonds at the same time. Which of the following can best illustrate the overall effects of the above changes on price and output levels?
Change
Change
Change
Student B ONLY knows the following:
(Contractionary)
(Contractionary)
?
?
?
Suppose the government raises income taxes and issues bonds at the same time. Which of the following can best illustrate the overall effects of the above changes on price and output levels?
3. Choose your answer strategically
0 Y
SRAS
AD0AD1
A. B.
C.
D.
P
Y
SRAS0
AD0AD1
P
0
0 Y
AD
LRAS0P
0 Y
AD0
LRAS0
AD1
P
SRAS1
LRAS1 LRAS1
10
AD must change.
Suppose the government raises income taxes and issues bonds at the same time. Which of the following can best illustrate the overall effects of the above changes on price and output levels?
3. Choose your answer strategically
0 Y
SRAS
AD0AD1
A. B.
C.
D.
P
Y
SRAS0
AD0AD1
P
0
0 Y
AD
LRAS0P
0 Y
AD0
LRAS0
AD1
P
SRAS1
LRAS1 LRAS1
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Y must decrease.
Both are contractionary policies.
Option A is the answer.
More examples will be provided later.
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