Chapter 18

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the: A. aggregate supply curve will shift to the right. B. aggregate demand curve will shift to the right. C. aggregate demand curve will shift to the left. D. aggregate supply curve will shift to the left.

B. aggregate demand curve will shift to the right.

The government can use ____________ in the form of ____________ to increase the level of aggregate demand in the economy. A. a contractionary fiscal policy; an increase in taxes B. an expansionary fiscal policy; an increase in government spending C. an expansionary fiscal policy; an increase in corporate taxes D. a contractionary fiscal policy; a reduction in taxes

B. an expansionary fiscal policy; an increase in government spending

If an economy moves into a recession, causing that country to produce less than potential GDP, then: A. automatic stabilizers will cause tax revenue to increase and government spending to decrease. B. automatic stabilizers will cause tax revenue to decrease and government spending to increase. C. tax revenue and government spending will be higher because of automatic stabilizers. D. tax revenue and government spending will be lower because of automatic stabilizers.

B. automatic stabilizers will cause tax revenue to decrease and government spending to increase.

Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing? A. economic policies B. fiscal policies C. monetary policies D. financial policies

B. fiscal policies

____________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation. A. Budget expenditures B. Discretionary fiscal policies C. Automatic stabilizers D. Standardized employment budgets

C. Automatic stabilizers

What is meant by government debt? A. When the federal government spends more than it collects in taxes in a given year. B. Economic policies that involve government spending and taxes. C. A monetary policy that decreases the supply of money and the quantity of loans. D. The total accumulated amount that the government has borrowed and not yet paid back over time.

D. The total accumulated amount that the government has borrowed and not yet paid back over time.

All of the following are practical concerns or limitations of discretionary fiscal policy EXCEPT: A. Politicians always prefer contractionary fiscal policy. B. Fiscal policy cannot actually change the level of Potential GDP. C. The amount of time it takes for discretionary fiscal policy to become law and have an effect on the economy is long and variable. D. Expansionary fiscal policy can raise interest rates, which works against the expansionary impact of the policy.

A. Politicians always prefer contractionary fiscal policy.

Which of the following describes European countries that followed a policy of "austerity" following the 2007-2009 Great Recession? A. These countries tended to have slower economic growth after the recession, although it is hard to estimate how much growth was directly harmed by austerity policies. B. These countries used an expansionary fiscal policy. C. These countries quickly bounced back from the Great Recession. D. These countries used their sovereign wealth funds to support their economies.

A. These countries tended to have slower economic growth after the recession, although it is hard to estimate how much growth was directly harmed by austerity policies.

Which of the following is true of countries with a sovereign wealth fund? A. These countries are located only in the Middle East. B. The countries use sovereign wealth funds to pay interest on their debt. C. These countries are earning a rate of return on their sovereign wealth funds.

C. These countries are earning a rate of return on their sovereign wealth funds.

What is meant by contractionary fiscal policy? A. When the government passes a new law that explicitly changes overall tax or spending levels. B. When the federal government spends more than it collects in taxes in a given year. C. When fiscal policy decreases the level of aggregate demand, either through cuts in government spending or increases in taxes. D. Tax and spending rules that have the effect of increasing aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation.

C. When fiscal policy decreases the level of aggregate demand, either through cuts in government spending or increases in taxes.

Which of the following characteristics relate to discretionary fiscal policy? A. Tax and spending rules that have the effect of increasing aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation. B. When fiscal policy decreases the level of aggregate demand, either through cuts in government spending or increases in taxes. C. When the government passes a new law that explicitly changes overall tax or spending levels. D. When the federal government spends more than it collects in taxes in a given year.

C. When the government passes a new law that explicitly changes overall tax or spending levels.

When inflation begins to climb to unacceptable levels in the economy, the government should: A. use contractionary fiscal policy to shift aggregate demand to the left. B. use expansionary fiscal policy to shift aggregate demand to the left. C. use contractionary fiscal policy to shift aggregate demand to the right. D. use expansionary fiscal policy to shift aggregate demand to the right.

C. use contractionary fiscal policy to shift aggregate demand to the right.

A ____________ means that government spending and taxes collections are equal. A. fiscal budget B. contractionary fiscal policy C. discretionary fiscal policy D. balanced budget

D. balanced budget

A ____________ exists when the federal government spends more than it collects in taxes in a given year. A. budget surplus B. regressive tax C. corporate tax D. budget deficit

D. budget deficit

If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used? A. standardized B. discretionary C. contractionary D. expansionary

D. expansionary