Exam skills Fiscal policy versus monetary policy 1.

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Presentation transcript:

Exam skills Fiscal policy versus monetary policy 1

Example 1 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? 0 Y SRAS AD 0 AD 1 A.B. C. D. P Y SRAS 0 AD 0 AD 1 P 0 0 Y AD LRAS 0 P 0 Y AD 0 LRAS 0 AD 1 P SRAS 1 LRAS 1 2

You should... 1.Study the questions carefully 2.List the relevant information you have 3.Choose your answer strategically 3

1. Study the questions carefully 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? 4 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 5 TWO policies 1.Raising income taxes 2.Issuing bonds

2. List the relevant information you have 6 Policy Effect on AS curve Effect on AD 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? ? Shifts leftwards ? ?  (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 strategy a.Find the diagram(s) with a leftward shift in AD. 3. Choose your answer strategically 0 Y SRAS AD 0 AD 1 A.B. C. D. P Y SRAS 0 AD 0 AD 1 P 0 0 Y AD LRAS 0 P 0 Y AD 0 LRAS 0 AD 1 P SRAS 1 LRAS 1 7

No Yes 3. Choose your answer strategically 8 Yes No Well done Eliminate an option Can you choose the best answer now? Eliminate an option No No?! Skip this question and try it later! Can you choose the best answer now? Strategy 2: Elimination method

Policy Effect on AS curve Effect on AD curve Effect on Y 1.Raising income taxes 2.Issuing bonds Overall effects 3. Choose your answer strategically 9 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 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 AD 0 AD 1 A.B. C. D. P Y SRAS 0 AD 0 AD 1 P 0 0 Y AD LRAS 0 P 0 Y AD 0 LRAS 0 AD 1 P SRAS 1 LRAS 1 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 AD 0 AD 1 A.B. C. D. P Y SRAS 0 AD 0 AD 1 P 0 0 Y AD LRAS 0 P 0 Y AD 0 LRAS 0 AD 1 P SRAS 1 LRAS 1 11 Y must decrease. Both are contractionary policies. Option A is the answer.

More examples will be provided later. 12