An expansionary fiscal policy can be illustrated by a: O Leftward shift in the aggregate supply curve O Rightward shift in the aggregate demand curve O Rightward shift in the aggregate supply curve O Leftward shift in the aggregate demand curve
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- Which of the following would be classed as an expansionary fiscal policy? O An increase in the money supply O A reduction in the number of goods exempted from VAT O An increase in the VAT rate O An increase in government expenditureWhich of the following would be classed as an expansionary fiscal policy? O A. An increase in the money supply Ов. A reduction in the number of goods exempted from VAT An increase in government taxation OD. An increase in government expenditureWhich of the following is not a predicted outcome of implementing automatic fiscal policy? О а. Reduces the size of the multiplier O b. Helps prevent inflation due to inflationary gaps O C. Moderates the business cycle O d. Decreases the deficit O e. Reduces the effects of economic shocks
- The existence of lags in designing and implementing fiscal policy helps illustrate some of the limitations of fiscal policy aimed at easing the burdens of a recession. Which of the following statements best describes a situation when fiscal policy is more appropriate? O The Implementation lag is shorter than the recognition and legislative lags. O Demand-pull Inflation is expected to occur as the economy begins to self-correct. O To stimulate an economy that is in a severe recession or one that is slow to correct. O Fiscal policy favors tax cuts Instead of increased government purchases since this removes the legislative lag.Which of the following statements is true? O A balanced budget would not affect income because an increase in government spending is exactly matched by an increase in taxes. OIf crowding out exists, contractionary fiscal policy will cause the aggregate demand curve to shift in by more" than indicated by the government spending multiplier. O When aggregate expenditures are greater than real GDP, there will be inventory accumulation. O The flatter the aggregate supply curve, the less the amount of government spending necessary to close a $1 billion GDP gap.Which of the following statements is not true? A decrease in federal income tax rates is an example of fiscal policy that affects GDP through consumption adjustments. O Automatic stabilizers act to moderate business cycles primarily through the personal income and consumption channels. O Other things equal, the steeper the slope of the aggregate supply curve, the less effective will be the expansionary fiscal policy. When aggregate expenditure (AE) exceed Real GDP, inventory levels rise unexpectedly, which sends a signal to firms that they have overproduced, so they cut back on production.
- The graph below shows real GDP levels over time. Answer the following questions based on this graph. Real GDP Business Cycle A Time a. At time T, what is the economy experiencing? O an economic expansion O full-employment output O an economic contraction b. In order to smooth out the business cycle, what type of fiscal policy should the government undertake? O expansionary fiscal policy O contractionary fiscal policy c. What type of actions might the government take? O a decrease in taxes and an increase in government purchases O an increase in taxes and a decrease in government purchases O a decrease in both taxes and government purchases. O an increase in both taxes and government purchasesTRUE - OR - FALSE Using fiscal policy to increase aggregate demand may have undesirable inflationary consequences. O True O FalseWhich of the following is NOT a tool of fiscal policy. O taxes O government spending Onterest rates none of the above Question 2 Assume the economy is in a deep recession. The appropriate fiscal policy response would be to: raise taxes and raise govemment expenditures cut taxes and cut govermment expenditures raise taxes and cut government expenditures O cut taxes and increase government expenditures D Question 3 Crowding out refers to the fact that: Tax cuts will cause inflation O Tax cuts may result in higher interest rates which will "crowd out" business investment spending O increased government spending will crowd out spending on imports none of the above
- Which of the following statements is true of government spending? O An increase in government spending raises the equilibrium level of income by a multiple of the original spending increase. O Government spending is a part of monetary policy, not fiscal policy. O A decline in government spending brings about an expansion in the economy. O An increase in government spending increases the recessionary gap in the economy. An increase in government spending shifts the aggregate demand curve downward by a fraction of the rise in governiment spending.Which of the following is not a weakness of fiscal policy? O a. Fiscal policy might have undesirable long-term effects on short-run aggregate supply. b. Time lags in fiscal policy are long and variable. c. Fiscal policy works only during periods of stagflation. O d. Implementation of policy is difficult. e. Fiscal policy often affects only current income, but many economic decisions are made on the basis of permanent income.When the economy is in a recession, the government can use expansionary iscal policy to stimulate and encourage économic growth. Which of the following scenarios represent expansionary fiscal policies from both a supply perspective and a demand perspective? Choose one or more: OA The Federal Reserve increases the money supply and lowers the interest rate while the government simultaneously reduces future taxes. OB. The government lowers tax rates and issues a partial refund of taxes that have already been paid. OC The government raises tax rates and reduces payments of unemployment benefits. OD The government lowers tax rates and undertakes a replacement.of old bridges and roads. Suppose that, during a recession, the government borrows money to provide free wireless Internet access in urban areas. Whichof the following statements are correct? Choose one or more: RA This policy will likely be accompanied by an impact lag as the policy takes time to make its way to the people. O B. The…