19. Fiscal policy refers to the: A. manipulation of government spending and taxe

Question

19. Fiscal policy refers to the: A. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. B. manipulation of government spending and taxes to achieve greater equality in the distribution of income. C. altering of the interest rate to change aggregate demand. D. fact that equal increases in government spending and taxation will be contractionary 20. Built-in stability means that: A. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy. B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus. C. Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity D. government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year. 21 Which of the following best describes the built-in stabilizers as they function in the United States? A. The size of the multiplier varies inversely with the level of GDP. B. Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. C. Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Explanation / Answer

1.Fiscal policy refers to government's policies undertaken to stabilize the economy by reducing taxes,increasing transfer payments or government spending.

Answer-A

2.Built in stability are automatic stabilizers in the form of taxes and transfer payments that stabilizes the economy without discretion of the government.

Answer-B

3.A built in stabilizer would increase taxes in Inflation and reduce transfer payments and subsidies.

Answer-D.

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