ECON 1040 HW Mult Choice

11. Discretionary fiscal policy refers to: A. any change in government spending or taxes that destabilizes the economy. B. the authority that the President has to change personal income tax rates. C. intentional changes in taxes and government expenditures made by Congress to stabilize the economy. D. the changes in taxes and transfers that occur as GDP changes.

12. Countercyclical discretionary fiscal policy calls for: A. surpluses during recessions and deficits during periods of demand-pull inflation. B. deficits during recessions and surpluses during periods of demand-pull inflation. C. surpluses during both recessions and periods of demand-pull inflation. D. deficits during both recessions and periods of demand-pull inflation

13. Fiscal policy refers to the: A. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. B. manipulation of government spending and taxes to achieve greater equality in the distribution of income. C. altering of the interest rate to change aggregate demand. D. fact that equal increases in government spending and taxation will be contractionary.

Discretionary fiscal policy is so named because it: is undertaken at the option of the nation's central bank. occurs automatically as the nation's level of GDP changes. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. is invoked secretly by the Council of Economic Advisers.

Expansionary fiscal policy is so named because it: involves an expansion of the nation's money supply. necessarily expands the size of government. is aimed at achieving greater price stability. is designed to expand real GDP.

Contractionary fiscal policy is so named because it: involves a contraction of the nation's money supply. necessarily reduces the size of government. is aimed at reducing aggregate demand and thus achieving price stability. is expressly designed to expand real GDP.

An economist who favors smaller government would recommend: tax cuts during recession and reductions in government spending during inflation. tax increases during recession and tax cuts during inflation. tax cuts during recession and tax increases during inflation. increases in government spending during recession and tax increases during inflation.

An economist who favored expanded government would recommend: tax cuts during recession and reductions in government spending during inflation. tax increases during recession and tax cuts during inflation. tax cuts during recession and tax increases during inflation. increases in government spending during recession and tax increases during inflation.

An appropriate fiscal policy for a severe recession is: a decrease in government spending. a decrease in tax rates. appreciation of the dollar. an increase in interest rates.

A contractionary fiscal policy is shown as a: rightward shift in the economy's aggregate demand curve. rightward shift in the economy's aggregate supply curve. movement along an existing aggregate demand curve. leftward shift in the economy's aggregate demand curve.

An expansionary fiscal policy is shown as a: rightward shift in the economy's aggregate demand curve. movement along an existing aggregate demand curve. leftward shift in the economy's aggregate supply curve. leftward shift in the economy's aggregate demand curve.

Refer to the above diagram, in which Qf is the full-employment output. If aggregate demand curve AD1 describes the current situation, appropriate fiscal policy would be to: 3a 12.png increase taxes and reduce government spending to shift the aggregate demand curve rightward to AD2. reduce taxes on businesses to shift the aggregate supply curve leftward. reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2. do nothing since the economy appears to be achieving full-employment real GDP.

Refer to the above diagram, in which Qf is the full-employment output. If aggregate demand curve AD3 describes the current situation, appropriate fiscal policy would be to: do nothing since the economy appears to be achieving full-employment real output. increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility. increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. increase taxes and reduce government spending to shift the aggregate demand curve from AD3 to AD1.

Refer to the above diagram, in which Qf is the full-employment output. If aggregate demand curve AD2 describes the current situation, appropriate fiscal policy would be to: do nothing since the economy appears to be achieving full-employment real output. increase taxes and reduce government spending to shift the aggregate demand curve rightward from AD2 to AD3. increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. reduce taxes and increase government spending to shift the aggregate demand curve from AD2 to AD1.

Which of the following best describes the idea of a political business cycle? Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. Fiscal policy will result in alternating budget deficits and surpluses. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.

The political business cycle refers to the possibility that: incumbent politicians will be reelected regardless of the state of the economy. politicians will manipulate the economy to enhance their chances of being reelected. there is more inflation during Democratic administrations than during Republican administrations. recessions coincide with election years.

The crowding-out effect of expansionary fiscal policy suggests that: government spending increases at the expense of private investment. imports replace domestic production. private investment increases at the expense of government spending. saving increases at the expense of investment.

The U.S. public debt: refers to the debts of all units of government—Federal, state, and local. consists of the total debt of U.S. households, businesses, and government. refers to the collective amount that U.S. citizens and businesses owe to foreigners. consists of the historical accumulation of all past Federal deficits and surpluses.

The crowding-out effect suggests that: tax increases are paid primarily out of saving and therefore are not an effective fiscal device. government borrowing to finance the public debt increases the real interest rate and reduces private investment. it is very difficult to have excessive aggregate spending in a capitalist economy. consumer and investment spending always vary inversely.

The Federal government has a large public debt that it finances through borrowing. As a result, real interest rates are higher than otherwise and the volume of private investment spending is lower. This illustrates the: equation-of-exchange effect. paradox of thrift. crowding-out effect. net export effect.

Which of the following is considered a legitimate concern of a large public debt? Bankruptcy of the Federal government Crowding-out of private investment Burdening future generations Collapse of the financial system