Chapter 8

Refer to the above graph. A budget deficit would be associated with GDP level:

A. J.

Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2? (a shift to the right-up)

B. A decrease in taxes and an increase in government spending

Which of the following are contractionary fiscal policies?

B. Increased taxation and decreased government spending

Which is an example of an automatic stabilizer? As real GDP decreases, income tax revenues:

B. decrease and transfer payments increase.

If the Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):

B. expansionary fiscal policy.

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

B. increased government spending or decreased taxation, or a combination of the two actions.

The political business cycle refers to the possibility that:

B. politicians will manipulate the economy to enhance their chances of being reelected.

In an aggregate demand and aggregate supply graph, an expansionary fiscal policy can be best illustrated by a:

B. rightward shift in the aggregate demand curve.

Which combination of fiscal policy actions would be most contractionary for an economy experiencing severe demand-pull inflation?

C. Increase in taxes and decrease in government spending

What real or potential economic problem is posed by the public debt and its growth?

C. It may crowd out investment in new capital goods.

Fiscal policy is enacted through changes in:

D. taxation and government spending

Refer to the above diagram. An expansionary fiscal policy can best be represented by a:

C. shift in the aggregate demand curve from AD1 to AD2.

Refer to the above diagram. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation?

A. Decrease aggregate demand by increasing taxes.

An economist who favors smaller government would recommend:

A. tax cuts during recession and reductions in government spending during inflation.