Tackle the Test: Free-Response Questions

1. Question

   Refer to the graph above.

   
   

   
   

   1. What type of gap exists in this economy?

      
      
   
   

   2. What type of fiscal policy is appropriate in this situation?

      
      
   
   

   3. List the three variables the government can change to implement fiscal policy.

      
      
   
   

   4. How would the government change each of the three variables to implement the policy you listed in part b?

      
      
   
   

   Rubric for FRQ 1 (8 points)

   1 point: Inflationary

   1 point: Contractionary

   1 point: Taxes

   1 point: Government transfers

   1 point: Government purchases of goods and services

   1 point: Increase taxes

   1 point: Decrease government transfers

   1 point: Decrease government purchases of goods and services

2. Question

   
   

   1. Draw a correctly labeled graph showing an economy experiencing a recessionary gap.

      
      
   
   

   2. What type of fiscal policy is appropriate in this situation?

      
      
   
   

   3. Give an example of what the government could do to implement the type of policy you listed in part b. (6 points)

      
      
   
   

   Rubric for FRQ 2 (6 points)

   

   1 point: The vertical axis is labeled “Aggregate price level” or “Price level” and the horizontal axis “Real GDP.”

   1 point: SRAS is upward-sloping and labeled; AD is downward-sloping and labeled. 1 point: Equilibrium price level is labeled on the vertical axis and equilibrium real GDP is labeled on the horizontal axis, both where SRAS and AD intersect.

   1 point: LRAS is vertical above YP and to the right of equilibrium real GDP.

   1 point: Expansionary fiscal policy

   1 point: Citing either decreased taxes, increased government purchases of goods and services, or increased government transfers as an example of a type of expansionary fiscal policy