39) Which of the following represents the most expansionary fiscal poliey? A) (B
ID: 1106164 • Letter: 3
Question
39) Which of the following represents the most expansionary fiscal poliey? A) (B) (C) D) aS10 billion tax cut a S10 billion tax increase a $10 billion increase as10 billion decrease in government spending in government spending 40) Discretionary fiseal policy will stabilize the economy most when: A) deficits B) Q are incurred during recessions and surpluses during inflations the budget is balanced each year deficits are incurred during inflations and surpluses during reces D) budget surpluses are continuously incurred. 41) The crowding-out effect of expansionary fiscal policy suggests that: an effective fiscal A) tax increases are paid primarily out of saving and therefore are not B) government borrowing to finance the public debt increases the real interest rate and C) it is very difficult to have excessive aggregate spending in a capitalist economy. device. reduces private investment. D) consumer and investment spending always vary inversely 42) Which of the following fiscal policy actions would be appropriate if the economy is experiencing an inflationary gap? A) an increase in government spending B) an increase in taxes C) a decrease in interest rates D) an increase in the money supply 43) Suppose the economy is experiencing a recessionary gap at the current level of GDP. Which of the following fiscal policy actions would be most appropriate given this recessionary gap? A) decreasing interest rates B) increasing the money supply C) decreasing taxes D) a simultaneous and equal reduction in taxes and reduction in government spending 44) When current government expenditures exceed current tax revenues in a fiscal year then the budget has neither a deficit nor a surplus. the full-employment budget has a deficit. fiscal policy is contractionary. A) 8) C) D) nominal GDP and real GDP are equal.Explanation / Answer
39.
C.
Government spending will have the direct impact. But, the total reduction will also face the MPC so that income made available due to the reduction in taxes, will not be totally spent.
40.
A
41.
B.
The government spending wipes out the available funds in the economy. Hence, the interest rate will rise and discourage the private investment.
42.
B.
Increasing tax will provide less disposable income to the consumers. It will discourage the demand and inflationary gap will come down.
43.
C
Decreasing tax will provide more disposable income to the consumers. It will encourage the demand and recessionary gap will come down.
44.
B.
with government spending more than the tax collection, there will be a deficit budget.
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