1- When an economy experiences a negative real shock, fiscal policy: Select one:
ID: 1173534 • Letter: 1
Question
1-
When an economy experiences a negative real shock, fiscal policy:
Select one:
a. using tax cuts is appropriate.
b. using increased government expenditures is appropriate.
c. is generally not appropriate.
d. is never used by politicians.
2-
Fiscal policy under the 2009 American Recovery and Reinvestment Act took the form of:
Select one:
a. government spending alone.
b. tax cuts alone.
c. a mix of government spending and tax cuts.
d. neither government spending nor tax cuts.
3-
Other things equal, will a temporary individual tax rebate or a permanent individual tax rebate provide the largest increase in aggregate demand?
Select one:
a. a temporary tax rebate
b. a permanent tax rebate
c. They will both produce the same amount of stimulus.
d. Neither will provide any stimulus.
Explanation / Answer
1)
Right answer is : (A)
Negative real shock affects supply affectively by increasing its cost. Hence, reduction in tax can improve situation.
2)
Right answer is : ( C)
It included both tax incentives and increase in government expenditure. It was designed based on the Keynesian prescription.
3)
Right answer is : ( B)
Permanent tax rebate changes behavior of consumers. Hence, they will tend to make more expenditure now.
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