Which of the following is not one of the criticisms of fiscal policy? a Fiscal p

Question

Which of the following is not one of the criticisms of fiscal policy?

a Fiscal policy in times of recessions will only increase the size of the federal debt.

b Analysis of fiscal policies used during the Great Depression show that they weren't helpful.

c The effects of fiscal policy on aggregate demand are uncertain.

d The time lag for implementing fiscal policy is substantial, and economic conditions may change from the time the fiscal policy is devised to the time it actually takes effect.

e There is a fairly good alternative to fiscal policy.

One justification for a personal income tax cut is to increase the labor supply. Given that this policy will increase aggregate demand and supply, there will be an inflationary pressure if:

Aggregate demand and supply grow roughly at the same rate.

Aggregate demand grows less rapidly than aggregate supply.

Aggregate supply grows, and aggregate demand remains unchanged.

Aggregate supply grows, and aggregate demand is falling.

Aggregate demand grows more rapidly than aggregate supply.

Assuming that the MPC = .75 and that prices are constant, which of the following fiscal policies would eliminate a recessionary gap of $60 billion while maintaining a balanced budget?

Increasing government spending by $60 billion while reducing taxes $80 billion.

Increasing government spending by $60 billion while raising taxes $80 billion.

Decreasing government spending by $60 billion while reducing taxes $60 billion.

Increasing government spending by $60 billion while raising taxes $60 billion.

Decreasing government spending by $60 billion while raising taxes $80 billion.

Suppose the current rate of inflation is about 14% and there is an inflationary gap of $150 billion in the economy. Which of the following policies would be most appropriate to reduce inflation if the marginal propensity to save (MPS) is equal to 0.05.

a Reduce government spending by $25 billion

b Reduce government spending by $7.5 billion

c Reduce government spending by $30 billion

Reduce government spending by $150 billion

e Reduce government spending by $50 billion.

a Fiscal policy in times of recessions will only increase the size of the federal debt.

b Analysis of fiscal policies used during the Great Depression show that they weren't helpful.

c The effects of fiscal policy on aggregate demand are uncertain.

d The time lag for implementing fiscal policy is substantial, and economic conditions may change from the time the fiscal policy is devised to the time it actually takes effect.

e There is a fairly good alternative to fiscal policy.

Explanation / Answer

c The effects of fiscal policy on aggregate demand are uncertain.
e  Aggregate demand grows more rapidly than aggregate supply.

Increasing government spending by $60 billion while raising taxes $60 billion.

Increasing government spending by $60 billion while raising taxes $60 billion.

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