ECONOMICS CH. 8

Which combination of fiscal policy would most likely be offsetting? A. Decrease in taxes and increase in government spending. B. Increase in taxes and government spending. C. Increase in taxes but no change in government spending. D. Decrease in taxes but no change in government spending

B. Increase in taxes and government spending.

When the federal government cuts taxes and increases spenidng to stimulate the economy during a period of recession, such actions are designed to be: A. automatic. B. countercyclical. C. nondiscretionary. D. passive.

B. countercyclical.

A contractionary fiscal policy can be illustrated by a (n): A. change in the price level. B. decrease in aggregate demand. C. increase in aggregate demand. D. increase in aggregate supply.

B. decrease in aggregate demand.

The crowding-out effect suggests that: A. high taxes reduce both consumption and saving. B. increases in government spending may raise the interest rate and thereby reduce private investment. C. increases in government spending will close a recessionary expenditure gap. D. increases in consumption are always at the expense of saving.

B. increases in government spending may raise the interest rate and thereby reduce private investment.

If the government wishes to increase the level of real GDP, it might reduce: A. its purchases of goods and services. B. taxes. C. the size of the budget deficit. D. transfer payments.

B. taxes.

Which of the following are contractionary fiscal policies? A. Increased taxation and increased government spending. B. No change in taxation and increased in government spending. C. Increased taxation and decreased government spending. D. Decreased taxation and no change in government spending

C. Increased taxation and decreased government spending.

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of: A. money creation. B. the standardized budget. C. built-in stability. D. impounding.

C. built-in stability.

When the federal government uses taxation and spending actions to stimulate the economy, it is conducting: A. employment policy. B. incomes policy. C. fiscal policy. D. monetary policy.

C. fiscal policy.

The combination of fiscal policies that would reinforce each other and be most expansionary would be a (n): A. increase in government spending and taxes. B. decrease in government spending and taxes. C. decrease in government spending and an increase in taxes. D. increase in government spending and a decrease in taxes.

D. increase in government spending and a decrease in taxes.

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

D. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level

The time that elapses between the beginning of a recession or an inflationary episode an dthe identification of the macroeconomic problem is referred to as a (n): A. oerational lag. B. budget lag. C. administrative lag. D. recognition lag

D. recognition lag

What are government's fiscal policy options for moving the economy out of a recession? The options for moving the economy out of a recession is either by increase government spending or reduce the taxes.

The options for moving the economy out of a recession is either by increase government spending or reduce the taxes.

The public debt is held as: A. Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds. B. U.S. gold certificates. C. Federal Reserve Notes. D. U.S. securities, corporate bonds, and common stock

A. Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

Refer to the above diagram. The economy is at equilibrium at point B. What fiscal policy would increase real GDP? A. Increase aggregate demand from AD2 to AD3 by decreasing taxes. B. Decrease aggregate demand from AD2 to AD3 by increasing government spending. C. Decrease aggregate demand from AD2 to AD3 by decreasing government spending. D. Increase aggregate demand from AD2 to AD1 by decreasing taxes.

A. Increase aggregate demand from AD2 to AD3 by decreasing taxes.

Which is an example of an automatic stabilizer? As real GDP decreases, income tax revenues: A. decrease and transfer payments increase. B. increase and transfer payments decrease. C. and transfer payments decreases. D. and transfer payments increase.

A. decrease and transfer payments increase.

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

A. deficits during recessions and surpluses during periods of demand-pull inflation.

The federal budget deficit is calculated each year by: A. subtracting government spending from government revenues. B. subtracting consumption and investment from government spending. C. adding up the difference between government revenues and spending over the years of the nation's existence. D. adding up consumption, investment, government purchases, and net exports.

A. subtracting government spending from government revenues.

What is the crowding-out effect, and why might it be relevant to fiscal policy? Crowding-out effect is a theory that rises the in public sector spending drive down or eliminate private sector spending. The increase in government spending is to decrease aggregate demand but the result from the two may decrease the country's investment

Crowding-out effect is a theory that rises the in public sector spending drive down or eliminate private sector spending. The increase in government spending is to decrease aggregate demand but the result from the two may decrease the country's investment. I believe you wanted to say "the increase in government spending is to"--increase aggregate demand, but the result from the two may decrease the country's investment. Crowding-out effect is a decrease in private investment caused by higher interest rates that result from the federal government's increased borrowing to finance deficits (or debt). Whenever government borrows money, it increases the overall demand for money. If the monetary authorities are holding the money supply constant, this increase in demand will raise the price for borrowing money: the interest rate. Because investment spending varies inversely with the interest rate, some investment will be choked off or "crowded out".

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): A. contractionary fiscal policy. B. nondiscretionary fiscal policy. C. supply-side fiscal policy. D. expansionary fiscal policy.

D. expansionary fiscal policy.

A federal budget deficit exists when: A. federal government spending is increasing. B. federal government assets are less than liabilities. C. federal government taxation is decreasing. D. federal government spending exceeds tax revenues

D. federal government spending exceeds tax revenues