Ch.

12 Exam Review
AP Macroeconomics
1. What does fiscal policy refer to?
2. Explain the significance of Discretionary fiscal policy.
3. What is the difference between expansionary and contractionary fiscal policy?
4. Between cutting taxes and increasing spending, which option has the greatest
impact on GDP?
5. What is the difference in the policies of a conservative economist and a liberal
economist?
6. Write out the formulas for the tax multiplier and the spending multiplier. Why is
it important to know these when considering how much to shift the AD curve?
7. Explain the options of the government to control demand-pull inflation.
8. What would be the appropriate fiscal policy during a recession?
9. Illustrate the idea of built-in stability by using a graph and explain the advantage
of having built-in (automatic) stabilizers.
10. What does the political business cycle refer to?
11. Explain the following concepts: Recognition lag, Administrative lag, and
Operational Lag. How do they impact Fiscal Policy?
12. Explain the crowding out effect and the net export effect.
13. Given an MPC of .8, how much would government have to increase taxes in order
to move AD leftward by $80 billion?
14. What action of the government with a budget surplus would have the greatest
anti-inflationary impact on the economy?
15. What is the main principle of supply side economics?