WorksheetsFiscal Policy - A Few Review Questions
Total questions: 15
Worksheet time: 8mins
Fiscal policy refers to changes in:
government regulations that affect the level of market competition.
interest rates that affect the credit markets.
the money supply in an attempt to raise the standard of living.
government spending or taxes in an attempt to influence the overall economy.
To shorten a recession, the federal government can:
increase taxes.
increase its spending.
increase interest rates.
increase the discount rate.
In the short run, an increase in government spending probably will cause the overall price level to:
increase
decrease
remain unchanged
become unpredictable
When consumers cut back on spending, _____ fall(s).
aggregate demand
the money supply
aggregate supply
tax rates
The multiplier effect from an increase in government spending causes additional increases in aggregate demand through:
a decrease in taxes.
even more government spending.
an increase in consumer spending.
a decrease in interest rates
Crowding out:
limits fiscal policy's ability to increase aggregate demand.
affects contractionary fiscal policy.
increases the multiplier effect.
Crowding out occurs when:
higher government spending leads to less private spending.
personal consumption increases due to a decrease in savings.
overall output is crowded out by lower government spending.
increases in government spending lead to increases in taxes.
Increases in government spending financed through additional borrowing will typically have the largest impact on aggregate demand when:
the stock market and other private investments are booming.
increased uncertainty has caused a decrease in private sector borrowing and spending.
interest rates are high.
private sector spending is high.
Which theory states that a tax cut does NOT affect aggregate demand because people save all they gain from the tax cut?
quantity theory of money
inefficient market hypothesis
purchasing power parity
Ricardian equivalence
In a recession, automatic stabilizers cause:
an increase in tax revenues or a decrease in government spending.
a decrease in tax revenues or an increase in government spending.
an increase in both tax revenues and government spending.
a decrease in both tax revenues and government spending.
Automatic stabilizers are:
federal spending and tax policies that stimulate aggregate demand in a recession without the need for explicit action by policymakers.
subject to significant lags.
a result of the U.S. regressive tax system.
not very effective fiscal policy.
The AD AS Model suggests that when an economy enters a recession caused by a decrease in productivity, fiscal policy:
can easily fix the situation.
is unlikely to fix the situation.
Which is an example of countercyclical fiscal policy?
increasing taxes during a recession
decreasing taxes during a recession
increasing government purchases during an expansion
decreasing government purchases during a recession
What two opposing forces affect the degree of impact that fiscal policy has on aggregate demand?
progressive taxes and regressive taxes
deficits and surpluses
crowding out and the multiplier effect
business cycles and trends
When the economy is at full employment, the main impact of an increase in total spending is:
an increase in output.
a decrease in output.
an increase in the average price level.
a decrease in the average price level.
