Question 1

Which of the following is not a policy taken by an Arab country to lessen the adverse effects of the 2008 economic crisis?&#10;A) Labor-intensive, small-scale income generating projects for young people.&#10;B) Increased public spending to maintain construction projects.&#10;C) Subsidizing the price of basic goods.&#10;D) Tax increases on medium and small businesses.

Accepted Answer

Tax increases on medium and small businesses would likely exacerbate the economic downturn by placing additional financial burdens on these entities, rather than alleviating the adverse effects of the 2008 economic crisis. Other options like labor-intensive projects, increased public spending, and subsidizing basic goods are direct measures to stimulate the economy and support the population during economic hardships.

Question 2

You would expect less fluctuation in the percentage of government purchases to GDP of nonoil-based Arab economies relative to that of oil-based Arab economies. Why is that?&#10;A) Oil-based Arab countries change their government expenditure plans dramatically each year.&#10;B) Governments in nonoil-based Arab economies know how to manage resources better.&#10;C) Government purchases in oil-based Arab economies are financed by receipts of oil revenues. Therefore, they fluctuate according to oil prices.&#10;D) All of the above.

Accepted Answer

Government purchases in oil-based Arab economies are heavily dependent on oil revenues, which are subject to significant fluctuations due to changes in global oil prices. This leads to more variability in the percentage of government purchases to GDP in these countries compared to nonoil-based Arab economies, where government revenue sources are more diversified and less volatile.

Question 3

The sharp increase in the percentage of government purchases to GDP in Kuwait in 1991 is due to________&#10;A) the Kuwaiti government was trying to be the highest GCC country in terms of government purchases.&#10;B) a revolution by the youth of Kuwait demanding more government purchases.&#10;C) the Gulf War at the time.&#10;D) None of the above.

Accepted Answer

The sharp increase in government purchases to GDP in Kuwait in 1991 was primarily due to the Gulf War, which necessitated significant government spending on defense and reconstruction.

Question 4

Transfer payments include ________&#10;A) government aid to the poor.&#10;B) unemployment Insurance.&#10;C) social security.&#10;D) all of the above.

Accepted Answer

Transfer payments include all forms of government payments that do not require an exchange of goods or services in return, such as government aid to the poor, unemployment insurance, and social security.

Question 5

Stabilization policy is used by the government to&#10;A) offset the effects of the business cycle on the economy.&#10;B) offset the effects of inflation.&#10;C) stabilize foreign -exchange rates.&#10;D) stabilize interest rates.

Accepted Answer

Stabilization policy, including both fiscal and monetary policy tools, is primarily aimed at smoothing out the fluctuations in the economy due to the business cycle, helping to reduce the severity of recessions and dampen the overheating that can occur in boom periods.

Question 6

Fiscal policy is determined by the&#10;A) the parliament and the central bank.&#10;B) president/king and the parliament.&#10;C) the central bank.&#10;D) president/king and the central bank.

Accepted Answer

Fiscal policy involves government spending and taxation decisions, which are determined by the legislative body (e.g., parliament) and the executive (e.g., president or king), not by the central bank. The central bank is responsible for monetary policy.

Question 7

Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion. To move the economy back to potential GDP, the parliament should&#10;A) lower taxes by an amount less than $500 billion.&#10;B) lower government purchases by $500 billion.&#10;C) lower taxes by $500 billion.&#10;D) raise government purchases by more than $500 billion.&#10;E) raise government purchases by $500 billion.

Accepted Answer

To close the gap between real GDP and potential GDP, the government can use fiscal policy. Lowering taxes by an amount less than $500 billion can increase aggregate demand, helping to move the economy towards potential GDP.

Question 8

The central bank Reserve plays a larger role than the government in stabilizing the economy because&#10;A) changes in interest rates have their full effect on the economy in a short period of time, whereas changes in government spending and taxes have their full effect over a long period of time.&#10;B) the central bank can immediately recognize when real GDP is below or above potential GDP.&#10;C) the central bank can more quickly change monetary policy than the government can change fiscal policy.&#10;D) changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes.

Accepted Answer

The central bank can adjust monetary policy more swiftly than the government can alter fiscal policy, allowing for quicker responses to economic conditions.

Question 9

Timing stabilization policy is easier using monetary policy than fiscal policy.

Accepted Answer

Monetary policy can be adjusted more frequently and quickly by central banks to respond to economic changes, whereas fiscal policy changes often require legislative approval, making it slower to implement.

Question 10

According to economist Christopher Ruhm, during recessions the unemployed may experience improved health due to more available time to exercise, prepare healthy meals, and visit their doctors.

Accepted Answer

Christopher Ruhm's research suggests that during economic downturns, some aspects of public health, such as reduced smoking and increased physical activity due to more available time, can improve. This is because people might use the additional time they have from being unemployed to engage in healthier behaviors, including exercising more, preparing healthier meals, and visiting healthcare providers.

Question 11

The government debt equals&#10;A) the accumulation of past budget deficits.&#10;B) tax revenues minus government spending.&#10;C) the total value of the government Treasury bonds outstanding.&#10;D) government spending minus tax revenues.

Accepted Answer

The answer of The government debt equals&#10;A) the accumulation of...

Question 12

Which of the following is considered a weakness of the flat tax?&#10;A) The complexity of the tax system would increase under the flat tax.&#10;B) Tax compliance would decrease if the tax were implemented.&#10;C) Savings and investment would decline under the flat tax.&#10;D) The distribution of income would be more unequal under the tax.

Accepted Answer

The answer of Which of the following is considered a...

Question 13

What is the key reason why Lebanon's fiscal policy was unsustainable?&#10;A) Lebanon was aiming to reach EU levels of debt at lower than 60% of GDP.&#10;B) Two-thirds of government expenditure is allocated to interest repayments and wages.&#10;C) The 2008 global financial crisis had increase Lebanese remittances.&#10;D) Growth was only 3 percent in 2009.

Accepted Answer

The answer of What is the key reason why Lebanon's...

Deck 23: Fiscal Policy