QUIZ 13 ECON

Fiscal policy refers to the:

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

• altering of the interest rate to change aggregate demand

• fact that equal increases in government spending and taxation will be contractionary.

• manipulation of government spending and taxes to achieve greater equality in the distribution of income.

When the federal government uses taxation and spending actions to stimulate the economy, it is conducting:

• monetary policy.

• incomes policy.

• fiscal policy.

• employment policy.

If the government wishes to increase the level of real GDP, it might reduce:

• taxes

• transfer payments.

• its purchases of goods and services

• the size of the budget deficit.

Which combination of fiscal policy would most likely be offsetting?

• Increase in taxes but no change in government spending.

• Increase in taxes and government spending.

• Decrease in taxes but no change in government spending.

• Decrease in taxes and increase in government spending

Refer to the above diagram. The economy is at equilibrium at point B. What fiscal policy would increase real GDP?

• Decrease aggregate demand from AD2 to AD3 by decreasing government spending.

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

• Increase aggregate demand from AD2 to AD1 by decreasing taxes.

• Decrease aggregate demand from AD2 to AD3 by increasing government spending.

Countercyclical discretionary fiscal policy calls for:

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

• deficits during both recessions and periods of demand-pull inflation.

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

• surpluses during both recessions and periods of demand-pull inflation.

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of:

• the standardized budget

• money creation.

• impounding

• built-in stability.

The crowding-out effect suggests that

• high taxes reduce both consumption and saving

• increases in consumption are always at the expense of saving.

• increases in government spending will close a recessionary expenditure gap.

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

The time that elapses between the beginning of a recession or an inflationary episode an the identification of the macroeconomic problem is referred to as a (n):

• budget lag

• administrative lag.

• oerational lag

• recognition lag.

A federal budget deficit exists when:

• federal government assets are less than liabilities.

• federal government spending is increasing

• federal government spending exceeds tax revenues.

• federal government taxation is decreasing