Unit 3: Fiscal Policy Quiz

If fiscal policy is used to correct a recessionary gap, which of the following will most likely occur in the absence of crowding out in the short-run?

• Real Output Increases and Unemployment Decreases

• Real Output Increases and Unemployment Increases

• Real Output Decreases and Unemployment Decreases

• Real Output Decreases and Unemployment Increases

• Real Output Increases and No Change in Unemployment

Following a decrease in exports, what fiscal policy would restore the economy to the original equilibrium?

• An increase in the income tax rate

• An increase in government transfer payments

• A reduction in the government budget deficit

• An open-market purchase of bonds by the central bank

• An open-market sale of bonds by the central bank

A discretionary fiscal policy action to reduce inflation in the short-run would be to

• increase transfer payments to those on fixed incomes

• increase taxes or decrease government spending.

• decrease taxes or increase government spending

• increase taxes or the money supply

• decrease taxes or the money supply

Crowding out is most likely to occur with which of the following change?

• Decrease in government spending

• Increase in budget surplus

• Increase in budget deficit

• Decrease in the real interest rate

• Decrease in trade deficit

Expansionary fiscal policy will most likely result in

• a decrease in the money supply

• an increase in the marginal propensity consume

• an increase in RGDP

• a decrease in the level of output

• a decrease in the price level

If the federal government decreases its expenditures on goods and services by $10 billion and decreases taxes on personal incomes by $10 billion, which of the following will occur in the short-run?

• The federal budget deficit will increase by $10 billion.

• The federal budget deficit will decrease by $10 billion.

• Aggregate income will remain the same.

• Aggregate income will increase by up to $10 billion.

• Aggregate income will decrease by up to $10 billion.

The formula to calculate the expenditures or simple multiplier is

• 1/MPC

• 1/1-MPS

• 1/1-MPC

• MPC/MPS

• MPS/MPC