Question 1

After policymakers determine that the unemployment rate is higher than desired, they debate for six months to decide which fiscal policy to use before making a policy decision. The time period of debate is referred to as _____ lag.
A) an implementation
B) a countercyclical
C) an impact
D) a recognition

Accepted Answer

The answer of After policymakers determine that the unemployment rate...

Question 2

Government policymakers increase government spending on school construction. The number of jobs in the economy gradually expands over the next three years. The time period that it takes for the number of jobs to change is referred to as _____ lag.
A) an implementation
B) a countercyclical
C) an impact
D) a recognition

Accepted Answer

An impact lag refers to the time it takes for the effects of a policy change, such as increased government spending on school construction, to manifest in the economy, such as through job creation.

Question 3

One advantage of automatic stabilizers over discretionary fiscal policy is that automatic stabilizers:
A) do not have a long time lag problem.
B) do not affect the government budget balance.
C) have a much stronger impact on economic growth rates.
D) affect both employment and inflation rates rather than just inflation.

Accepted Answer

Automatic stabilizers, such as unemployment benefits and progressive tax systems, automatically adjust to changes in economic conditions without the need for new government action, thus avoiding the long time lags associated with implementing discretionary fiscal policies.

Question 4

After policymakers realize that a problem exists but before they make a decision, they explore possibilities during a period called the ______ time lag.
A) implementation
B) impact
C) recognition
D) existential

Accepted Answer

The answer of After policymakers realize that a problem exists...

Question 5

The period of time during which data is collected and analyzed to determine whether an economic stability problem exists is referred to as the _____ time lag in addressing an economic problem through policy.
A) implementation
B) impact
C) recognition
D) existential

Accepted Answer

The recognition time lag refers to the period needed to identify and diagnose an economic issue before any policy measures can be implemented to address it.

Question 6

The period of time to put a chosen policy into place and allow it to have its multiplied effect on an economy is referred to as the _____ time lag in addressing an economic problem through policy.
A) implementation
B) impact
C) recognition
D) existential

Accepted Answer

The impact time lag refers to the period needed for a policy to be fully effective in the economy after its implementation.

Question 7

Automatic stabilizers are policies that:
A) respond to fluctuations in the economy without requiring elected government leaders to take any new actions.
B) require employers to maintain employment levels regardless of economic conditions.
C) keep government spending and taxes at a consistent, stable level to stabilize the economy.
D) raise the taxes during recessions and lower them during inflation.

Accepted Answer

Automatic stabilizers are designed to automatically adjust government spending or taxes in response to economic changes, such as fluctuations in national income, without the need for new legislative action. This helps to moderate the effects of economic cycles by providing a counter-cyclical response to economic downturns (e.g., by increasing government spending or reducing taxes) or overheating economies (e.g., by reducing government spending or increasing taxes), thus stabilizing the economy.

Question 8

When an economy is at full-employment, the impact of expansionary fiscal policy is limited by the nation's _____ constraint.
A) budget
B) inflation
C) money
D) resource

Accepted Answer

When an economy is at full employment, expansionary fiscal policy is limited by the resource constraint because all resources (labor, capital, etc.) are already fully utilized, and increasing demand further can lead to inflation rather than an increase in output.

Question 9

When an economy is at full employment, expansionary fiscal policies tend to have:
A) little or no impact on national output.
B) maximum impact on national output.
C) little or no impact on inflation.
D) maximum impact on deflation.

Accepted Answer

When an economy is at full employment, resources are fully utilized, so expansionary fiscal policies are likely to lead to inflation rather than an increase in national output.

Question 10

Monetary policy is less effective during:
A) periods of inflation.
B) a liquidity trap.
C) periods of unemployment.
D) a large government budget deficit.

Accepted Answer

A liquidity trap occurs when interest rates are low and savings rates are high, rendering monetary policy ineffective because people prefer to hold onto cash rather than spending or investing it. This situation makes it difficult for central banks to stimulate economic activity through traditional monetary policy tools like lowering interest rates.

Question 11

During a liquidity trap, interest rates are _____, and monetary policy is _____ effective than fiscal policy.
A) high; more
B) high; less
C) near zero; more
D) near zero; less

Accepted Answer

During a liquidity trap, interest rates are near zero, making traditional monetary policy tools less effective than fiscal policy in stimulating the economy.

Question 12

When are monetary and fiscal policies most effective?
A) Both are more effective when they address inflation than unemployment.
B) Both are more effective when they address unemployment than inflation.
C) Fiscal is more effective in a liquidity trap, and monetary is more effective otherwise.
D) Monetary is more effective in a liquidity trap, and fiscal is more effective otherwise.

Accepted Answer

Fiscal policy is more effective in a liquidity trap, where interest rates are near zero and monetary policy becomes ineffective because people hoard cash instead of spending it. Monetary policy is generally more effective in normal times for managing the economy's demand side.

Question 13

During a liquidity trap:
A) monetary and fiscal policies are equally effective.
B) changes in taxes do not impact aggregate demand.
C) changes in government spending do not impact aggregate demand.
D) monetary policy is less effective.

Accepted Answer

During a liquidity trap, interest rates are so low that monetary policy (e.g., changing the money supply) becomes ineffective at stimulating the economy, making fiscal policy relatively more effective.

Question 14

Which of the following policies would a supply-sider be most likely to support during stagflation?
A) a countercyclical policy
B) low marginal tax rates that stimulate incentives for earning income
C) a fixed or constant rate of growth for the money supply
D) flexible wages, prices, and interest rates that stabilize economies

Accepted Answer

Supply-siders believe in reducing marginal tax rates to stimulate investment, increase production, and ultimately spur economic growth, which aligns with option B.

Question 15

Supply-siders focus on marginal tax rates because they:
A) recognize an the effect of tax rates on incentives to work, save and invest.
B) want maximum tax revenue to fund the maximum number of government programs.
C) do not believe that a change in government spending will impact the economy due to crowding out.
D) want government to increase as a share of economic activity.

Accepted Answer

Supply-siders emphasize the impact of marginal tax rates on the incentives for individuals and businesses to engage in productive economic activities such as working, saving, and investing. They argue that lower marginal tax rates can stimulate economic growth by enhancing these incentives.

Question 16

(Figure: Moving an Economy Out of a Recession 0) The figure shows moving an economy out of a recession. Demand-side fiscal stimulus causes the aggregate demand curve to shift to the _____, causing _____ inflation and _____ output.
 
A) right; higher; higher
B) right; lower; higher
C) right; lower; lower
D) left; lower; higher

Accepted Answer

The answer of (Figure: Moving an Economy Out of a...

Question 17

(Figure: Moving an Economy Out of a Recession A) The figure shows moving an economy out of a recession. Supply-side policies offer policymakers an alternative approach to move out of a recession:
 
A) without generating inflation by decreasing the short-run aggregate supply.
B) without generating inflation by increasing the short-run aggregate supply.
C) by generating inflation and increasing the long-run aggregate supply.
D) by generating inflation and decreasing the long-run aggregate supply.

Accepted Answer

The answer of (Figure: Moving an Economy Out of a...

Question 18

What would supply-siders want the government to focus on as it designs macroeconomic policy?
A) Provide countercyclical fiscal policies that minimize unemployment and inflation.
B) Control short-run aggregate supply through discretionary monetary policies.
C) Have the government supply more goods and services to the citizens of the country.
D) Provide incentives for high levels of production and productivity through policies such as low marginal tax rates.

Accepted Answer

Supply-siders advocate for policies that incentivize production and efficiency, such as reducing marginal tax rates, to stimulate economic growth. They believe this approach increases supply, leading to more jobs and higher economic output.

Question 19

Which of the following principles would be accepted by a supply-sider?
A) Aggregate demand determines national output.
B) Monetary policy is the best tool for influencing aggregate supply.
C) Government on national parks spending is the key to resolving recessions.
D) People produce less of whatever is taxed heavily.

Accepted Answer

Supply-side economics emphasizes that lower taxes can stimulate economic growth by encouraging people to produce more. This principle is reflected in choice D, which states that heavy taxation on something leads to less production of it. This aligns with the supply-side view that reducing taxes on labor, capital, and investments can increase overall economic output.

Question 20

During a period of stagflation, which of the following policies would a supporter of supply-side policies NOT support?
A) Reduce marginal tax rates.
B) Encourage the development of new technology.
C) Increase government spending.
D) Encourage investments in capital.

Accepted Answer

Supply-side policies focus on increasing productivity and potential output in the economy, rather than increasing demand. Increasing government spending is typically associated with demand-side policies, which aim to stimulate the economy through government expenditure, and is not a supply-side approach.

Quiz 28: Fiscal Policy and the Business Cycle

After policymakers determine that the unemployment rate is higher than desired, they debate for six months to decide which fiscal policy to use before making a policy decision. The time period of debate is referred to as _____ lag.

Government policymakers increase government spending on school construction. The number of jobs in the economy gradually expands over the next three years. The time period that it takes for the number of jobs to change is referred to as _____ lag.

One advantage of automatic stabilizers over discretionary fiscal policy is that automatic stabilizers:

After policymakers realize that a problem exists but before they make a decision, they explore possibilities during a period called the ______ time lag.

The period of time during which data is collected and analyzed to determine whether an economic stability problem exists is referred to as the _____ time lag in addressing an economic problem through policy.

The period of time to put a chosen policy into place and allow it to have its multiplied effect on an economy is referred to as the _____ time lag in addressing an economic problem through policy.

Automatic stabilizers are policies that:

When an economy is at full-employment, the impact of expansionary fiscal policy is limited by the nation's _____ constraint.

When an economy is at full employment, expansionary fiscal policies tend to have:

Monetary policy is less effective during:

During a liquidity trap, interest rates are _, and monetary policy is _ effective than fiscal policy.

When are monetary and fiscal policies most effective?

During a liquidity trap:

Which of the following policies would a supply-sider be most likely to support during stagflation?

Supply-siders focus on marginal tax rates because they:

(Figure: Moving an Economy Out of a Recession 0) The figure shows moving an economy out of a recession. Demand-side fiscal stimulus causes the aggregate demand curve to shift to the ___, causing _ inflation and ___ output.

(Figure: Moving an Economy Out of a Recession A) The figure shows moving an economy out of a recession. Supply-side policies offer policymakers an alternative approach to move out of a recession:

What would supply-siders want the government to focus on as it designs macroeconomic policy?

Which of the following principles would be accepted by a supply-sider?

During a period of stagflation, which of the following policies would a supporter of supply-side policies NOT support?