7. When the government runs a budget deficit, it will have toand borrow a. cut c
ID: 1128048 • Letter: 7
Question
7. When the government runs a budget deficit, it will have toand borrow a. cut current spending.. .more b. increase future spending...less c. increase future taxes..less d. cut future taxes..more 8. If the multiplier is 2.5 and MPC is 0.6, which policy would cause a billion? a. Increase government spending by $40 billion. b. Cut in taxes by $100 billion. c. Increase government spending by $50 billion and decrease taxes by $100 billion. d. Increase government spending and taxes by $100 billion. _9. During a recession, automatic stabilizers would lead to a. increased government spending for goods b. decreased government spending for services. c. increased taxes. d. increased transfer payments. -10. If the government wanted to create the GREATEST fiscal stimulus, it would reduce spending and taxes. increase spending and keep taxes the same. increase spending and taxes. increase spending and reduce taxes. a. b. c. d. _11. with an MPC of 0.8 and a GDP gap of $200 billion, the recessionary gap is a. $60 billion. b. $40 billion. c. $50 billion. d. $100 billion. -12. Which of the following is an expansionary fiscal policy? a. A decrease in government spending and an increase in taxes. b. An increase in government spending and an increase in taxes. c. A decrease in government spending and a decrease in taxes. d. An increase in government spending and a decrease in taxes. -13. According to the Laffer curve, if the tax rates were too high a. there will be inflation. b. the government will spend too much money. c. there will be a recession. d the government's tax revenues will fall.Explanation / Answer
Ans)
7.
a. cut current spending....more
The government runs a budget deficit when the current spending is more than the revenues collected.
8.
a. increase government spending by $40 billion
spending should be increased by 100/2.5=40 billion
9.
d. increased transfer payments.
Automatic stabilizers act as a cushion to demand during recessions by increasing the transfer payments and reducing taxes.
10.
d. increase spending and reduce taxes
In order to induce fiscal stimulus one must spending, thus by spending more and levying less taxes the government can create the greatest fiscal stimulus.
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