CH. 11

In 2001, Congress passed a law which reduced income tax rates. This is an example of A) a discretionary fiscal policy. B) an annual tax policy. C) an automatic fiscal policy. D) a discretionary revenue policy. E) induced tax policy.

A) a discretionary fiscal policy.

An example of automatic fiscal policy is A) a change in taxes that has no multiplier effect. B) expenditure for unemployment compensation increasing as a recessionary gap develops. C) the Federal Reserve reducing interest rates as economic growth slows. D) Congress passing a tax rate reduction package.

B) expenditure for unemployment compensation increasing as a recessionary gap develops.

Automatic fiscal policy is defined as A) actions taken by an act of Congress to stabilize the economy. B) fiscal policy that stabilizes without the need for action by Congress. C) actions taken by the President without Congressional consent to stabilize the economy. D) policy that has no multiplier effects.

B) fiscal policy that stabilizes without the need for action by Congress.

If a country is in a recessionary gap and impliments an expansionary fiscal policy, what would be the most likely effect on the country's unemployment rate? A) The unemployment rate would stay the same. B) The unemployment rate is not related to fiscal policy. C) The unemployment rate would increase. D) The unemployment rate would decrease.

D) The unemployment rate would decrease.

If a country is in a recessionary gap, an expansionary fiscal policy that could be implimeted to move the economy to full employment is to A) increase income tax rates and decrease government expenditures. B) increase income tax rates. C) decrease government expenditures. D) decrease income tax rates.

D) decrease income tax rates.

If the government reduces expenditure on goods and services by $30 billion, then aggregate demand A) increases and potential GDP increases. B) increases and potential GDP decreases. C) decreases and potential GDP decreases. D) decreases and real GDP decreases. E) increases and real GDP increases.

D) decreases and real GDP decreases.

Which of the following is a limitation of discretionary fiscal policy? i. law-making time lags ii. estimating potential GDP iii. income gap A) i only B) i, ii, and iii C) iii only D) i and ii E) ii only

D) i and ii

If government expenditure on goods and services increases by $20 billion, then real GDP will _________ and price levels will _______. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase

D) increase; increase

Discretionary fiscal policy is defined as fiscal policy A) with multiplier effects. B) initiated by a Presidential proclamation. C) triggered by the state of the economy. D) initiated by an act of Congress. E) left to the discretion of military authorities.

D) initiated by an act of Congress.

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in personal income taxes, the effect of the increase in government expenditure on aggregate demand is A) equal to the effect of the tax decrease. B) negative whereas the effect of the tax decrease is positive. C) positive whereas the effect of the tax decrease is negative. D) less than the effect of the tax decrease. E) greater than the effect of the tax decrease.

E) greater than the effect of the tax decrease.