Fiscal policy

Question 1

  1. Which of the following is an example of fiscal policy?

  • Question 2

    1. The federal government can alter aggregate demand by all of the following except:

    10 points

    Question 3

    1. The desired tax cut to cure a recessionary gap will be:

    10 points

    Question 4

    1. Crowding out occurs when the government:

    10 points

    Question 5

    1. Which of the following will not undermine the effectiveness of fiscal policy?

    10 points

    Question 6

    1. According to Keynes the source of high unemployment is:

    10 points

    Question 7

    1. A tax stimulus measure might not be as powerful as policy makers hope because:

    10 points

    Question 8

    1. If MPC is .80, and government spending increases by $200 billion then:

    10 points

    Question 9

    1. A fiscal stimulus is intended to:

    10 points

    Question 10

    1. If the government wanted to reduce inflation in the economy, it could:

    Short Answers

    1. What happens to the following variables during an expansion?

    a. unemployment compensation

    b. welfare payments

    c. income tax receipts

    d. government budget deficits (surplus)

    2. Suppose the government decides to increase taxes by $30 billion in order to increase

    Social Security benefits by the same amount. How will this combined tax-transfer policy

    affect aggregate demand at current prices?

    3. If the AD shortfall is $800 billion and the MPC is 0.8,

    a) How large is the desired fiscal stimulus?

    b) How large an income tax cut is needed?

    c) Alternatively, how much more government spending would achieve the target?

    4. If the AD excess is $400 billion and the MPC is 0.9,

    a) How much fiscal restraint is desired?

    b) By how much do income taxes have to be increased to get that restraint?

    5. From the perspective of someone using aggregate-demand and aggregate supply

    analysis, what is the impact of a tax cut when the economy is operating above full

    employment. Is this a wise policy? Why or why not?

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