Why is expansionary fiscal policy ineffective at increasing long-run aggregate o
ID: 1163026 • Letter: W
Question
Why is expansionary fiscal policy ineffective at increasing long-run aggregate output when the economy is already at full employment?
a) Businesses will hoard the additional money they make.
b) Consumers will save the additional money they are given.
c) Inflationary expectations rise.
d) At full employment, the marginal propensity to consume is too low for expansionary fiscal policy to be effective.
If an economy has moved into an inflationary spiral, which of the following fiscal policy actions might be taken?
a) Increasing government spending.
b) Decreasing transfer payments.
c) Increasing transfer payments.
d) Decreasing taxes.
Why is expansionary fiscal policy ineffective at increasing long-run aggregate output when the economy is already at full employment?
a) Businesses will hoard the additional money they make.
b) Consumers will save the additional money they are given.
c) Inflationary expectations rise.
d) At full employment, the marginal propensity to consume is too low for expansionary fiscal policy to be effective.
Which of the following is a description of an automatic stabilizer of the business cycle?
a) When the economy is expanding, transfer payments increase.
b) When the economy is expanding, tax receipts increase.
c) When the economy is contracting, tax receipts increase.
d) When the economy is contacting, transfer payments decrease.
Which of the following is a description of an automatic stabilizer of the business cycle?
a) When the economy is expanding, transfer payments increase.
b) When the economy is expanding, tax receipts decrease.
c) When the economy is contracting, tax receipts increase.
d) When the economy is contracting, transfer payments increase.
The part of the national debt that constitutes a claim on government assets is the debt held by:
a) only the public of the United States.
b) the public and other government agencies.
c) the public, including foreign governments.
d) foreign governments and agencies of the U.S. government.
the part of the national debt held by _____ constitutes a claim on government assets.
a) the Federal Reserve
b) the Social Security Administration
c) the Treasury Department
d) the public
The largest source of financing for the government’s debt in the United States is ___________.
a) the sale of government assets
b) the sale of bonds to public entities
c) the sale of bonds to the Federal Reserve
d) international tariffs
_______ represent(s) only a small fraction of government finance in the United States.
a) The sale of bonds to public entities
b) The sale of government assets
c) The sale of bonds to the Federal Reserve
d) Taxes
How large is the government's budget deficit if asset sales are $100 billion and the government sells $500 billion in bonds?
a) $100 billion
b) $400 billion
c) $500 billion
d) $600 billion
Explanation / Answer
1. c) Inflationary expectations rise.
Long run aggregate supply is a function of inflationary expectations. As expansionary fiscal policy only increases inflationary expectations with little effect on the long-run aggregate output.
2. b) Decreasing transfer payments.
In the event where econonmy is caught in inflationary spiral, the govt can cut down transfer payment to reduce the aggregate demand in the economy.
3. c) Inflationary expectations rise. (repeat question)
Long run aggregate supply is a function of inflationary expectations. As expansionary fiscal policy only increases inflationary expectations with little effect on the long-run aggregate output.
4. b) When the economy is expanding, tax receipts increase.
Tax is levied to reduce the output fluctuations in the economy. Hence, when economy is expanding, the tax receipts increase when output increases.
5. repeat question (same as 4)
6. c) the public, including foreign governments.
The US debt is not only held by public but also foreign govt such as China and Saudi Arabia.
PS: According to Chegg rules, in the event of multiple MCQs, only first 4 are attempted.
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