11. The process of deciding on and passing fiscal policy legislation creates a.
ID: 1173954 • Letter: 1
Question
11. The process of deciding on and passing fiscal policy legislation creates a. an information lag b. a formulation lag c. an implementation lag. d. a direction lag 12. Automatic stabilizers are the: a. taxes and government spending that affect fiscal policy without specific action from policymakers. b. fiscal policies that government actively chooses to adopt c. expansionary fiscal policies. d. Keynesian policies 13. With the economy booming, the government starts to worry about the increasing rate of inflation, and decides to cut its spending on highway maintenance and defer it to sometime in the future. This is an example of: a. an automatic stabilizer. b. discretionary fiscal policy c. expansionary fiscal policy d. None of these is true 14. The government-spending multiplier tells us a. the amount by which GDP increases when government spending increases by SI b. the amount by which GDP decreases when government increases its spending on capital goods by $1 c. the fraction of each dollar that will increase GDP of each dollar spent by the government. d. the amount by which government spending increases when GDP increases by S1Explanation / Answer
Ans.
11) b.Formulation lag
Formulation lag is the time taken to design policy measures to correct boom or when there is economy downturn .Whereas Implementation lag is the time taken to put desired policy measures into effect to correct a boom or economic downturn.
12) A.
Automatic stabilizers are taxes and government spending that effect fiscal policy without specific action from policymakers.It occurs automatically as the economy fluctuates.In other words it offsets fluctuations in economic activity without direct intervention of policymakers.
13) C.discretionary fiscal policy
This is an example of discretionary fiscal policy which refers to change in government spending which are not mandatory and are in response to changes in economic conditions.In the above example there is cut in government spending for highway maintenance due to increasing inflation such that it is left to be done in future.So it is a discretionary fiscal policy whereas expansionary fiscal policy is when there is increase in government spending or cut in taxes.
14) A.
The government spending multiplier tells us the amount by which GDP increases when government spending increases by $1. It indicates that how much change in aggregate demand would be there with change in the government spending.It is calculated as 1/(1-MPC).
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