16· The a makes recession less severe. b. has no effect on the severity of reces

Question

16· The a makes recession less severe. b. has no effect on the severity of recessions and inflationary episodes. c. makes recessions more severe and inflationary episodes less severe. d. makes recessions more severe. makes recessions less severe and inflationary episodes e. 17. A more severe, policy to do nothing and allow the economy to self-correct or adjust without interference from the foderal government is also called a(n) policy b. stabilization c. nonintervention d. fixed rule 18. Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.50, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of $1,000 billion aggregate demand can restore full employment, the government should: a. increase spending by $500 billion. b. increase spending by $250 billion. c. decrease spending by $500 billion. increase spending by $1,000 billion. Assume Congress enacts a $10 billion decrease in spending and a $10 billion decrease in tax revenue. The result of this balanced-budget approach is a: a $100 billion decrease in aggregate demand. b. S10 billion decrease in aggregate demand. c. $20 billion decrease in aggregate demand. d. S10 billion increase in aggregate demand Contractionary fiscal policy is deliberate govermnment action to influence aggregate demand and the level of real GDP through: a. regulating net exports. 19. 20. b. expanding and contracting the money supply. c. encouraging business to expand or contract investment. d. decreasing government spending or increasing taxes. hordthin to reauire people whose income is below $15,000 per year to pay income

Explanation / Answer

16. The right answer is option a. makes the recession less severe.

Explanation: Unemployment compensation program is a source of automatic stabilization. It helps in stabilizing the economy when it is under the recession. In a recession, unemployment becomes high and consumption goes down as people earn less income. Unemployment compensation programs can spur consumption and stabilizing the economy.

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