Answer 1-3 1. Which of the following is a concern of fiscal policy? a. changes i

Question

Answer 1-3

1. Which of the following is a concern of fiscal policy?

a. changes in the money supply.

b. changes in interest rates.

c. changes in taxes.

2. Which of the following is a concern of fiscal policy?

a. changes in government expenditure.

b. changes in the money supply.

c. changes in interest rates.

3. Which of the following is an example of an automatic fiscal policy stabilizer?

a. Congress decides to cut spending on national defense.

b. Congress cuts individual income tax rates.

c. Tax revenues rise after Congress raises corporate tax rates.

d. Tax revenues fall as real GDP decreases.

Explanation / Answer

(1) ANswer is option (c). changes in taxes is a fiscal policy measure exercised by the government.

(2) Answer is option (a). Changes in government expenditure is a concern of fiscal policy.

(3) The correct answer is option (d). Automatic stabilizers are economic policies and programs designed to offset fluctuations in a nation's economic activity without intervention by the government or policymakers on an individual basis. The best-known automatic stabilizers are corporate and personal taxes, and transfer systems such as unemployment insurance and welfare. Automatic stabilizers are so called because they act to stabilize economic cycles and are automatically triggered without explicit government action. So when tax revenue falls as GDP is reduced, the multiplier effect in the economy is dampened.

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