Question

1. Most recessions originate from:

            a. an increase in aggregate demand                c. an increase in aggregate supply

            b. a decrease in aggregate demand                 d. a decrease in aggregate supply

2. In the 1930’s our main economic problem, said Keynes, was:

            a. too much government interference with the economy

            b. insufficient aggregate demand

            c. inflation

            d. huge budget deficits

3.

Supply side economics stresses that:

            a. budget deficits will stimulate demand, output, and employment

            b. budget deficits will lead to higher interest rates, which will weaken their expansionary impact

            c. an increase in government expenditures financed by higher tax rates will cause real incomes to rise

            d. changes in marginal tax rates exert important effects on real output and employment

Answer 1

1.

b. a decrease in aggregate demand  

It will cause AS to decrease and unemployment level will also increase as a consequence. It will initiate recession in the economy.

2.

B

Lack of AD, will caused slow down, made AS to suffer and great depression took place.

3.

D

changes in marginal tax rates encourages supply and it increases to improve the output. It will also increase the employment condition.