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Which model is described as useful in judging whether expansionary or contractionary policy is appropriate?
AThe money multiplier model
BThe business cycle model
CThe comparative cost model
DAggregate demand and supply
Answer & Solution
Correct answer: D. Aggregate demand and supply
1. Fiscal policy choices are judged against a standard framework.
2. Fiscal policy shifts the aggregate demand curve in one direction or the other.
3. The aggregate demand and aggregate supply model is named directly.
4. It is useful in judging whether expansionary or contractionary fiscal policy is appropriate.
5. The direction depends on where the economy sits relative to potential.
_Source: OpenStax Principles of Macroeconomics for AP Courses 2e (CC BY 4.0), Ch 16 'Government Budgets and Fiscal Policy'_
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