1. (TCO 6) Expansionary fiscal policy is so named because it (Points : 1) involv
ID: 1183948 • Letter: 1
Question
1. (TCO 6) Expansionary fiscal policy is so named because it (Points : 1) involves an expansion of the nation's money supply. necessarily expands the size of government. is aimed at achieving greater price stability. is designed to expand real GDP. 2. (TCO 6) Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? (Points : 1) A Congressional proposal to incur a Federal surplus to be used for the retirement of public debt. Reductions in agricultural subsidies and veterans' benefits. Postponement of a highway construction program. Reductions in Federal tax rates on personal and corporate income. 3. (TCO 6) The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes (Points : 1) the supply-side effects of fiscal policy. built-in stability. the crowding-out effect. the net export effect. 4. (TCO 5) Which of the following would not shift the aggregate supply curve? (Points : 1) An increase in labor productivity A decline in the price of imported oil A decline in business taxes An increase in the price level 5. (TCO 6) Other things equal, a reduction in personal and business taxes can be expected to (Points : 1) increase aggregate demand and decrease aggregate supply. increase both aggregate demand and aggregate supply. decrease both aggregate demand and aggregate supply. decrease aggregate demand and increase aggregate supply. 6. (TCO 6) The consumption schedule directly relates (Points : 1) consumption to the level of disposable income. saving to the level of disposable income. disposable income to domestic income. consumption to saving. 7. (TCO 6) The size of the MPC is assumed to be (Points : 1) less than zero. greater than one. greater than zero, but less than one. two or more. 9. (TCO 6) The multiplier can be calculated as: (Points : 1) 1/(MPS + MPC). MPC/MPS. 1/(1 - MPC). 1 - MPC = MPS. 10. (TCO 5) The American Recovery and Reinvestment Act of 2009 was implemented primarily to (Points : 1) reduce inflationary pressure caused by oil price increases. curb the overspending by households that contributed to the Great Recession. bring the Federal budget back into balance. stimulate aggregate demand and employment. 11. (TCO 5) What effect would each of the following have on aggregate demand or aggregate supply? Explain. a. A reduction in personal income tax b. An increase in payroll taxes paid by the employer 12. (TCO 6) Explain how fiscal policy (making changes to government spending and taxes) would affect aggregate demand (AD). (Points : 5)Explanation / Answer
Expansionary fiscal policy is so named because it (Points : 1) is designed to expand real GDP.
(TCO 6) Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? (Points : 1) Reductions in Federal tax rates on personal and corporate income.
(TCO 6) The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes (Points : 1)
the crowding-out effect
4. (TCO 5) Which of the following would not shift the aggregate supply curve? (Points : 1)
An increase in the price level
5. (TCO 6) Other things equal, a reduction in personal and business taxes can be expected to (Points : 1)
Increase both aggregate demand and aggregate supply.
6. (TCO 6) The consumption schedule directly relates (Points : 1)
consumption to the level of disposable income.
7. (TCO 6) The size of the MPC is assumed to be (Points : 1)
greater than zero, but less than one.
9. (TCO 6) The multiplier can be calculated as: (Points : 1)
1/(1 - MPC).
10. (TCO 5) The American Recovery and Reinvestment Act of 2009 was implemented primarily to (Points : 1) stimulate aggregate demand and employment.
11. (TCO 5) What effect would each of the following have on aggregate demand or aggregate supply? Explain.
a. A reduction in personal income tax
A reduction in personal taxes increases the disposable income of the individuals leading to an increase in overall aggregate spending of the economy; this eventually shifts the AD curve towards right increasing the real GDP
b. An increase in payroll taxes paid by the employer
An increase in payroll taxes increases the costs leading to a decrease in supply; eventually, shifting the AS curve towards left decreasing the real GDP.
12. (TCO 6) Explain how fiscal policy (making changes to government spending and taxes) would affect aggregate demand (AD). (Points : 5)
Fiscal policy measures includes change in taxes and government spending.
During recession: An expansionary fiscal policy is required, where the government either reduces the taxes or increases the government spending or both to reduce the GDP gap or recession.
During inflationary pressures: A contractionary fiscal policy is implemented, here the government increases taxes or decreases government spending to reduce the aggregate demand, which results in a decrease in the real GDP.
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