1- When consumers receive tax rebates and use them to pay down debt rather than
ID: 2429163 • Letter: 1
Question
1-
When consumers receive tax rebates and use them to pay down debt rather than to increase spending:
Select one:
a. the resulting fiscal stimulus will be much larger than the initial tax rebate.
b. the resulting fiscal stimulus will be much smaller than the initial tax rebate.
c. the resulting fiscal stimulus will be the same size as the initial tax rebate.
d. it is impossible to say whether the resulting fiscal stimulus will be larger or smaller.
2-
Examples of expansionary fiscal policy include increases in:
Select one:
a. government spending.
b. income taxes.
c. the money supply.
d. interest rates.
3-
Which statement is NOT a major limit to the effectiveness of fiscal policy?
Select one:
a. A single increase in government spending may not be enough to stimulate the economy.
b. The crowding out effect is transmitted through financial markets.
c. Fiscal policy is not very effective in combating supply side shocks.
d. A multiplier effect is associated with changes in spending and taxation.
4-
What explains why Argentina had a greater than 100% crowding out during the 1999 to 2002 period?
Select one:
a. The government accidentally contracted expenditure instead of expanding it.
b. uncertainty and pessimism
c. implementation lags
d. recognition lags
5-
Fiscal policy under the 2009 American Recovery and Reinvestment Act took the form of:
Select one:
a. government spending alone.
b. tax cuts alone.
c. a mix of government spending and tax cuts.
d. neither government spending nor tax cuts.
6-
Fiscal policy:
Select one:
a. is the decrease in private spending that occurs when government increases spending.
b. occurs when people see that lower taxes today means higher taxes in the future, so instead of spending their tax cut they save it to pay future taxes.
c. is federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations.
d. is central bank policy on the monetary base, interest rates, and bank reserves that is designed to influence business fluctuations
7-
Which is the MOST effective fiscal policy to fight a recession if people react to uncertainty by saving all additional money that they earn or receive?
Select one:
a. a tax cut
b. a tax rebate
c. an increase in government spending
d. a do-nothing strategy that relies on automatic stabilizers
8-
President Obama's fiscal policy response to the 2008 recession involved changes in:
Select one:
a. government spending only.
b. taxation only.
c. both taxation and government spending.
d. neither government spending nor taxation.
9-
When an economy experiences a negative real shock, fiscal policy:
Select one:
a. using tax cuts is appropriate.
b. using increased government expenditures is appropriate.
c. is generally not appropriate.
d. is never used by politicians.
10-
Fiscal policy under the 2009 American Recovery and Reinvestment Act took the form of:
Select one:
a. government spending alone.
b. tax cuts alone.
c. a mix of government spending and tax cuts.
d. neither government spending nor tax cuts.
11-
Other things equal, will a temporary individual tax rebate or a permanent individual tax rebate provide the largest increase in aggregate demand?
Select one:
a. a temporary tax rebate
b. a permanent tax rebate
c. They will both produce the same amount of stimulus.
d. Neither will provide any stimulus.
Explanation / Answer
1. the resulting fiscal stimulus will be much smaller than the initial tax rebate. ( In this case because tax rebate is used to pay back debt this means spending hasn't increased so fiscal stimulus would be less than initial tax rebate)
2.goverment spending ( all others are monetary policy tools and Increased income tax is contractionary in nature)
3. The crowding out effect is transmitted through financial markets.( Increased interest rate will crowd out because cost of borrowing has increased)
4.uncertainity and pessimism( investment depends not only on rate of interest but also rate of return on investment so pessimism and uncertainty was the reason for crowding out)
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