WK 5 - PRACTICE: FISCAL POLICY

Which of the following policies involves decreasing government purchases and/or increasing taxes?

A contractionary fiscal policy

This policy involves increasing government purchases and/or decreasing taxes.

Expansionary fiscal policy

Fiscal policy relies on three assumptions: Recognizing the start of a recession. Government quickly determines effective policy. The policy is immediately effective. Which of these assumptions hold in the real world? Multiple choice question. 1 and 2 hold in the real world. 2 and 3 hold in the real world. All of the assumptions hold in the real world. None of the assumptions hold in the real world.

None of the assumptions hold in the real world. Reason: In the real world there are three lags associated with fiscal policy: the recognition lag, legislative lag, and implementation lag.

Which of the following is a limitation of implementing fiscal policies during a recession?

There are lags that delay the effectiveness of fiscal policy. Reason: There are three lags that delay the effectiveness of lags: recognition lag, legislative lag, and implementation lag.

We usually do not have certainty about the state of the economy on any given day. True False

True

The path to recovery using contractionary fiscal policy involves:

a jump start of decreased government spending followed by multiple rounds of decreased consumer spending.

The application of fiscal policy to decrease aggregate demand is called a(n) ________ fiscal policy.

contractionary

When government spending decreases, AD:

decreases

When taxes increase, AD:

decreases

The level of real GDP produced in an economy when it is operating at the natural rate of unemployment is called full _______ GDP.

employment

Price level and output both increase from a successful ___________ fiscal policy.

expansionary

The application of fiscal policy to increase aggregate demand is called _______ fiscal policy.

expansionary

The path to recovery using fiscal policy involves a jump start of decreased _______ spending followed by multiple rounds of decreased consumer spending as the economy recovers and incomes rise.

government

When government spending increases, AD:

increases.

The condition Y = Yfull employment refers to - equilibrium.

long run

The concept that an additional dollar of expenditure will result in the creation of more than one dollar's worth of real GDP is called the _______ effect.

multiplier

A(n) ______ occurs when an economy experiences a decline in real GDP for at least ______.

recession; two consecutive quarters or six months

The condition AD = AS refers to _______ - _______ equilibrium

short, run

Full-employment GDP refers to:

the level of real GDP produced in an economy when it is operating at the natural rate of unemployment.

The concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP is called:

the multiplier effect.

What is the effect of a successful contractionary fiscal policy on price level and output?

Both decrease.

Changes in government purchases and/or taxes designed to achieve full employment and low inflation is called _______ policy.

fiscal

Changes in government purchases and/or taxes designed to achieve full employment and low inflation is called ________ policy.

fiscal

Government _______ policy has limitations that reduce its effectiveness and may even cause the opposite of what was intended.

fiscal

Changes in government purchases and/or taxes designed to achieve full employment and low inflation is called:

fiscal policy.

The condition Y = Yfull employment refers to_______-________

long, run

Price level and output both decrease from a successful contractionary _______ policy.

monetary

Price level and output both increase from a successful expansionary _______ policy.

monetary

Lags hamper the effectiveness of _______ policy.

monetary or fiscal

Fiscal policy is:

the changes in government purchases and/or taxes designed to achieve full employment and low inflation.

The multiplier effect is/are:

the concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP.