Module 7- Fiscal Policy

Appropriate _________ policy actions would include _______ taxes and/or _______ government purchases.

expansionary; decreasing; increasing

The problem that this event will cause is _________ _________.

increased unemployment

These actions will smooth out the business cycle by ___________ actual real GDP back toward full-employment GDP.

increasing

If the MPC is an economy is 0.9, the government could shift the aggregate demand curve rightward by $40 billion by A.) increasing government purchases by $4 billion B.) increasing government purchases by $40 billion C.) decreasing taxes by $4 billion D.) increasing taxes by $4 billion

A.) increasing government purchases by $4 billion

The goal of fiscal policy is to ___________.

smooth out business cycles

What combination would most likely cause a shift from AD1 to AD2? A.) An increase in taxes and an increase in government purchases B.) A decrease in taxes and an increase in government purchases C.) An increase in taxes and no change in government purchases D.) A decrease in taxes and a decrease in government purchases

B.) A decrease in taxes and an increase in government purchases

Economy X has total government debt of $40,000 and Nominal GDP 60,000. Economy Y has total government debt of $32,000 and Nominal GDP 16,000. (Hint: Economy X is more like the United States; Economy Y is more like Greece in 2011.) A.) X has a more severe debt problem than Y. B.) Y has more severe debt problem than X. C.) X and Y are equal in terms of their debt situation D.) More information is needed to answer this question

B.) Y has more severe debt problem than X.

In the economy, tax revenue collected by the government this year is $15 million and government outlays are $13 million. This country currently has a _____. A.) budget deficit of $3 million B.) budget surplus of $2 million C.) public debt of $2 million D.) budget surplus of $3 million

B.) budget surplus of $2 million

As the economy contracts, tax revenues A.) rise and transfer payments rise, causing the economy to contract by more than it would in the absence of automatic stabilizers B.) fall and transfer payments rise, causing the economy to contract by less than it would in the absence of automatic stabilizers C.) fall and transfer payments fall, causing the economy to contract by more than it would in the absence of automatic stabilizers D.) rise and transfer payments fall, causing the economy to contract by less than it would in the absence of automatic stabilizers

B.) fall and transfer payments rise, causing the economy to contract by less than it would in the absence of automatic stabilizers

Which of the following is an example of built-in stability? As real GDP decreases, A.) income tax revenues increase and transfer payments decrease B.) income tax revenues decrease and transfer payments increase C.) income tax revenues and transfer payments both decrease C.) income tax revenues and transfer payments both increase

B.) income tax revenues decrease and transfer payments increase

Payments made by the government that do not require an exchange of economic activity in return are also known as A.) government spending B.) transfer payments C.) built-in stabilizers D.) fiscal multipliers

B.) transfer payments

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption=$500 billion, (2) investment=$50 billion, (3) government purchases= $100 billion, and (4) net exports= $20 billion. If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with closing the GDP-gap here? A.) an increase in government purchases and taxes B.) A decrease in government purchases and taxes C.) A decrease in government purchases and an increase in taxes D.) An increase in government purchases and a decrease in taxes

C.) A decrease in government purchases and an increase in taxes

Unemployment compensation is A.) an automatic stabilizer because it rises as income increases, slowing an economic expansion B.) an automatic stabilizer because it falls as income decreases, slowing an economic contraction. C.) an automatic stabilizer because it falls as income increases, slowing an economic expansion D.) not an automatic stabilizer

C.) an automatic stabilizer because it falls as income increases, slowing an economic expansion

One advantage of automatic stabilizers over discretionary fiscal policy is that automatic stabilizers A.) make the actual budget a better reflection of the condition of the economy than the standardized budget B.) do not produce a cyclical deficit as discretionary fiscal policy does C.) are not subject to the timing problems of discretionary fiscal policy D.) have a greater multiplier effect than discretionary fiscal policy

C.) are not subject to the timing problems of discretionary fiscal policy

When the federal government changes purchases and/or taxes to stimulate the economy or rein in inflation, such policy is A.) active monetary policy B.) automatic fiscal policy C.) discretionary fiscal policy D.) active federal policy

C.) discretionary fiscal policy

Using fiscal policy to stabilize the economy is difficult because A.) potential income is known B.) the effects of policy changes are known with certainty C.) there are time lags involved in the use of fiscal policy D.) the size of the government debt doesn't matter

C.) there are time lags involved in the use of fiscal policy

______________ fiscal policy will be used to __________.

Contractionary; reduce inflation

Which of the following would not be considered an automatic stabilizer? A.) Welfare payments B.) Unemployment compensation C.) Income tax D.) Defense spending

D.) Defense spending

Which of the following expenses are a part of the U.S. government's discretionary spending? A.) $90,000 earned by Mr.Bezos on a $10,000 U.S. Treasury bond B.) Food stamps received by the Gates family C.) Social Security Payment by the U.S. government D.) Education spending

D.) Education Spending

The existence of lags in designing and implementing fiscal policy helps illustrate some of the limitations of fiscal policy aimed at easing the burdens of a recession. Which of the following statements best describes a situation when fiscal policy is more appropriate? A.) Fiscal policy favors tax cuts instead of increased government purchases since this removes the legislative lag. B.) The implementation lag is shorter than the recognition and legislative lags. C.) The economy is quick to self-correct but the recession is very severe. D.) The economy is slow to self-correct or the recession is very severe.

D.) The economy is slow to self-correct or the recession is very severe.

First time home buyers tax credit in 2009 was an example of ______. A.) an automatic stabilizer B.) a contractionary government policy C.) an expansionary monetary policy D.) an expansionary fiscal policy

D.) an expansionary fiscal policy

The set of fiscal policies that would be most contractionary would be a(n) A.) increase in government purchases and taxes B.) decrease in government purchases and taxes C.) increase in government purchases and a decrease in taxes D.) decrease in government purchases and an increase in taxes

D.) decrease in government purchases and an increase in taxes

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.) increase 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.) serves as an automatic stabilizer for the economy

The decrease in gross investment will lead to ________ in aggregate demand. As a result, real GDP will _______.

a decrease; decrease

The increase in gross investment will cause ______________.

an increase in aggregate demand

The fiscal policy actions may include __________ in taxes and/or __________ in government purchases.

an increase; a decrease

This will lead to _______ in the price level and _________ in real GDP.

an increase; an increase