Macro Chapter 13 Homework

An appropriate fiscal policy for a severe recession is A) appreciation of the dollar. B) a decrease in tax rates. C) a decrease in government spending. D) an increase in interest rates.

B) a decrease in tax rates

Fiscal policy refers to the A) fact that equal increases in government spending and taxation will be contractionary. B) deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level. C) deliberate changes in government spending and taxes to achieve greater equality in the distribution of income. D) altering of the interest rate to change aggregate demand.

B) deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level

If the economy has a cyclically adjusted budget surplus, this means that A) the economy is actually operating at full employment. B) tax revenues would exceed government expenditures if full employment were achieved. C) the public sector is exerting an expansionary impact on the economy. D) the actual budget is necessarily also in surplus.

B) tax revenues would exceed government expenditures if full employment were achieved

Countercyclical discretionary fiscal policy calls for A) surpluses during both recessions and periods of demand-pull inflation. B) surpluses during recessions and deficits during periods of demand-pull inflation. C) deficits during recessions and surpluses during periods of demand-pull inflation. Correct D) deficits during both recessions and periods of demand-pull inflation.

C) deficits during recessions and surpluses during periods of demand-pull inflation

The cyclically adjusted budget refers to A) that portion of a full-employment GDP that is not consumed in the year it is produced. B) the number of workers who are underemployed when the level of unemployment is 4 to 5 percent. C) the size of the federal government's budgetary surplus or deficit when the economy is operating at full employment. D) the inflationary impact that the automatic stabilizers have in a full-employment economy.

C) the size of the federal government's budgetary surplus or deficit when the economy is operating at full employment

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the A) start of the recession and the time it takes to recognize that the recession has started. B) time the need for the fiscal action is recognized and the time that the action is taken. C) start of a predicted recession and the actual start of the recession. D) time fiscal action is taken and the time that the action has its effect on the economy.

A) start of the recession and the time it takes to recognize that the recession has started

The crowding-out effect of expansionary fiscal policy suggests that A) tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B) consumer and investment spending always vary inversely. C) it is very difficult to have excessive aggregate spending in the U.S. economy. D) increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

D) increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment

An expansionary fiscal policy is shown as a A) leftward shift in the economy's aggregate supply curve. B) movement along an existing aggregate demand curve. C) leftward shift in the economy's aggregate demand curve. D) rightward shift in the economy's aggregate demand curve.

D) rightward shift in the economy's aggregate demand curve

An economist who favors smaller government would recommend A) tax cuts during recession and tax increases during inflation. B) tax increases during recession and tax cuts during inflation. C) increases in government spending during recession and tax increases during inflation. D) tax cuts during recession and reductions in government spending during inflation.

D) tax cuts during recession and reductions in government spending during inflation

Built-in stability means that A) Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity. B) government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year. C) an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy. D) with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.

D) with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus