ECON 203 QUIZ 12

Discretionary fiscal policy will stabilize the economy most when A.deficits are incurred during recessions and surpluses during inflations. B.the budget is balanced each year. C.deficits are incurred during inflations and surpluses during recessions. D.budget surpluses are continuously incurred.

A.

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

A.

Which combination of fiscal policy actions would most likely offset each other? A.increase both taxes and government spending B.decrease taxes and increase government spending C.increase taxes but make no change in government spending D.decrease government spending but make no change in taxes

A.

Which of the following statements is correct? A.Built-in stability only partially offsets fluctuations in economic activity. B.Built-in stability works in halting inflation, but it cannot alleviate unemployment. C.Built-in stability can be relied on to eliminate completely any fluctuation in economic activity. D.Built-in stability has eliminated the need for discretionary fiscal policy.

A.

If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy would tend to be A.stronger. B.weaker. C.the exact opposite of what was intended. D.as the multiplier effect would predict.

B.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward A.an equality of tax receipts and government expenditures. B.an excess of tax receipts over government expenditures. C.an excess of government expenditures over tax receipts. D.a reduction of subsidies and transfer payments and an increase in tax rates.

C.

The cyclically adjusted budget tells us A.that in a full-employment economy, the federal budget should be in balance. B.that tax revenues should vary inversely with GDP. C.what the size of the federal budget deficit or surplus would be if the economy was at full employment. D.the actual budget deficit or surplus realized in any given year.

C.

The public debt is the amount of money that A.state and local governments owe to the federal government. B.Americans owe to foreigners. C.the federal government owes to holders of U.S. securities. D.the federal government owes to taxpayers.

C.

Which of the following best describes the idea of a political business cycle? A.Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. B.Fiscal policy will result in alternating budget deficits and surpluses. C.Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. D.Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.

C.

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

D.

An appropriate fiscal policy for severe demand-pull inflation is A.an increase in government spending. B.depreciation of the dollar. C.a reduction in interest rates. D.a tax rate increase.

D.

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system A.increases crowding out in the economy. B.decreases real interest rates in the economy. C.offsets the timing problem for fiscal policy. D.serves as an automatic stabilizer for the economy.

D.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? A.A congressional proposal to incur a federal surplus to be used for the retirement of public debt. B.Reductions in agricultural subsidies and veterans' benefits. C.Postponement of a highway construction program. D.Reductions in federal tax rates on personal and corporate income.

D.

True or False: Built-in stability is synonymous with discretionary fiscal policy.

False

True or False: The crowding-out effect refers to the possibility that deficit spending may motivate people to increase their saving in anticipation of higher future taxes.

False