1. If the economy is at equilibrium at less than full employment, fiscal policy
ID: 1188130 • Letter: 1
Question
1. If the economy is at equilibrium at less than full employment, fiscal policy would dictate that
A.government should increase taxes and decrease total spending.
B. government should reduce income transfers.
C. government should provide some sort of fiscal stimulus.
D. government should initiate fiscal restraint.
E. None of the above is correct.
2. Assume the economy is operating at $100 billion less than full employment equilibrium. If the macro MPC is 0.80, how much will the government have to increase purchases of goods and services to bring the economy to full employment?
A. $5 billion
B. $20 billion
C. $40 billion
D. $60 billion
E. $100 billion
3. In the above example, if the government determined to bring the economy to full employment by giving the taxpayer a tax cut, how much would the tax cut have to be?
A. $10 billion
B. $25 billion
C. $50 billion
D. $80 billion
E. $100 billion
4. If the economy is at equilibrium above the full employment level, then
A. a policy of fiscal restraint is indicated.
B. no fiscal policy actions are required since the economy is more than fully employed.
C. the federal government should continue to stimulate the economy toensure that full employment is maintained.
D. None of the above is the correct response.
5. "Crowding Out" occurs when the government
A. increases taxes, thus causing a decrease in consumption
B. issues debt, thus making it more difficult for the private sector to issue debt.
C. prints money, which displaces currency.
D. Does all of the above.
E. None of the above describes "crowding out"
Explanation / Answer
1-C
2-B
3-B
4 -A
5-E
IF DESIRABLE REASONS CAN BE EXPLAINED
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