Check 16: UNDERSTANDING notes on this chapter. 1. During the periods 2001- 2002 and 2007 – 2009, the US government engaged in expansionary fiscal policy. - The goal of this policy was to increase aggregate demand. 2. Which of the following activities represent(s) the use of fiscal policy? Answer: Option B and D. The economy is doing poorly, and government provides subsidies to key industries. And The economy is expanding, and the government increases the income tax rate to combat inflation. 3. Which of the following are expansionary fiscal policies? Answer: Option B and C. a decrease in taxes but an increase in government spending 4. Imagine a world where there are only two countries. In country A, the people spend 80% of their marginal income. In country B, the people spend 60% of their marginal income. In which country would fiscal policy be more effective and why? Answer: Fiscal policy will be more effective in country A because the multiplier will be Higher in country A 5. Assume there is a recessionary gap of $200 billion, and that the government has decided to engage in expansionary fiscal policy to eliminate this recessionary gap. How much must the government spend to get the economy to the long-run equilibrium if the marginal propensity to consume is 0.8? Answer: 40 billion 6. Which of the following are considered shortcomings of fiscal policy? Answer: Option A, C, and D. The federal government wants to expand the economy and provides grants to states. Because of this funding, states then cut back on their spending. It often takes several months to determine if the economy is in a recession or an expansion. And A person who receives a tax refund may decide to save most of it. 7. What kind of fiscal policy would work fastest during a recession and would be effective at growing the economy, as opposed to working more slowly during a recession? Quickly - The value of food stamps increases by 50% - Unemployment compensation is available for twice as long as it was previously Slowly - The government hires one million workers to reduce wait time at government offices. - A law is passed to build a new road and bridge in the state. 8. The impact of fiscal policy is limited by crowding-out. Which of the following events represent crowding-out with an expansionary fiscal policy? Answer: option D. As the government borrows more, the interest rate increases and private investment decreases. 9. You have just been elected to public office and you have been informed that the government does not have money to pay all of its bills. You have been told that if you were to cut the marginal tax rate, tax revenue would increase. Is this true and if so, what would be the reason for this? Answer: option B. This is only true if the marginal tax rate is too high

Principles Of Economics Q and A

Related Documents

Description

Related Documents

Struggling with your assignment and deadlines?

Free up your schedule!

Take 5 seconds to unlock