Fiscal Policy Phenomena Quiz

The government hires 2000 workers for new infrastructure projects. Over half of the newly hired construction workers, however, were employed in other sectors of the economy and quit their jobs to take this better paying opportunity. Identify what type of fiscal policy phenomenon is being described.

• Fiscal multiplier.

• Crowding out.

• Contractionary fiscal policy.

• Expansionary fiscal policy.

• a and c only.

The government increases taxes on corporations. Identify what type of fiscal policy phenomenon is being described.

• Fiscal multiplier.

• Crowding out.

• a and c only.

• Expansionary fiscal policy.

• Contractionary fiscal policy.

During a recession, the government increases spending by $300B, which in turn increases GDP by $350B. Identify what type of fiscal policy phenomenon is being described.

• a and d only.

• Contractionary fiscal policy.

• Crowding out.

• Fiscal multiplier.

• Expansionary fiscal policy.

During a recession, the government sends $500 checks to every American family. 70% of American families save the money or use it to pay off their debt. Identify what type of fiscal policy phenomenon is being described.

• Contractionary fiscal policy.

• Fiscal multiplier.

• Crowding out.

• Expansionary fiscal policy.

• a and c only.

Suppose a change in fiscal policy causes the AD curve to shift from AD(1) to AD(2) as shown above. Which response below would most likely cause that shift?

• A rise in taxes OR a rise in government spending

• A rise in taxes OR a fall in government spending

• A fall in taxes OR a rise in government spending

• A fall in taxes OR a fall in government spending

Suppose there is a negative oil shock and oil prices dramatically increase. What has happened?

• The aggregate demand curve shifts right.

• The aggregate demand curve shifts left.

When the central bank contracts the money supply in response to expansionary fiscal policy, this is known as:

• A monetary offset.

• Ricardian equivalence.

• Contractionary fiscal policy.

• The fiscal multiplier.

The Federal Reserve is considered a powerful institution because it has the power to:

• Act as a lender of last resort, control money supply in the long term, and print money.

• Create money, buy government bonds, and control long-term economic growth.

• Buy government bonds, act as a lender of last resort, and create money.

• Control short-term growth, create money, and buy government bonds.

Which of the following best describes the monetary base?

• Currency plus reserve deposits.

• M1 plus M2.

• Currency plus M1.

• Reserve deposits plus M1 and M2.

If the Federal Reserve increases the minimum reserve ratio that private banks are required to hold, the following will occur:

• The banks can make more loans and the money supply decreases.

• The banks can make more loans and the money supply increases.

• The banks can make fewer loans and the money supply decreases.

• The banks can make fewer loans and the money supply increases.