Mutiple choice questions You are a member of Congress in 2007-2009 when the econ

Question

Mutiple choice questions

You are a member of Congress in 2007-2009 when the economy is in a recessionary gap. If your goal is to achieve full employment, you should vote for

a. decreased government purchases, increased taxes, and a cut in transfer payments.

b. a balanced federal budget.

c. increased government purchases, decreased taxes, and an increase in transfer payments.

d. increased government purchases and transfer payments, and an equal increase in taxes.

One of the objectives of supply-side policies is to

a.

focus attention on the trade-off between inflation and unemployment.

b.

sharpen the trade-off between inflation and unemployment.

c.

eliminate the trade-off between inflation and unemployment.

d.

convince the public of the trade-off between inflation and unemployment.

a.

focus attention on the trade-off between inflation and unemployment.

b.

sharpen the trade-off between inflation and unemployment.

c.

eliminate the trade-off between inflation and unemployment.

d.

convince the public of the trade-off between inflation and unemployment.

Explanation / Answer

Recessionary gap occurs when the economy is below full employment level and real GDP is less than the potential GDP. In order for the government to correct it, it should engage in expansionary fiscal policy.

Correct option: (c) increased government purchases, decreased taxes, and an increase in transfer payments.

Supply-side policies are policies used by the government to improve an economy’s productive potential. It’s main focus is to increase economic growth, reduce inflation and unemployment and make the balance of payment equilibrium.

Correct option: (c) eliminate the tradeoff between inflation and unemployment

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