Question 1

When the government decreases spending or increases taxes to slow economic expansion,the government is conducting:

Accepted Answer

The government is conducting contractionary fiscal policy when it decreases spending or increases taxes to slow economic expansion. This policy is designed to slow down economic growth and reduce inflationary pressures.

Question 2

Expansionary fiscal policy occurs when the ________ to stimulate the economy toward expansion.

Accepted Answer

Expansionary fiscal policy aims to stimulate economic growth, which can be achieved by either increasing government spending or decreasing taxes. Therefore, the correct option is D) government increases spending or decreases taxes. Option E is incorrect because it refers to monetary policy, which is different from fiscal policy. Options A and B are incorrect because they both involve decreasing government spending, which would have a contractionary effect on the economy rather than an expansionary one. Option C involves increasing taxes, which would also have a contractionary effect on the economy.

Question 3

Typical fiscal policy focuses squarely on shifting ________ to change the economy.

Accepted Answer

Fiscal policy is typically used to influence aggregate demand in the economy, which refers to the total amount of goods and services that households, businesses, and governments want to buy at any given time. By changing government spending and/or taxes, policymakers can affect aggregate demand and therefore stimulate or slow down economic growth. Short-run and long-run aggregate supply, on the other hand, refer to the amount of goods and services that producers are willing and able to supply at different price levels, and they are not typically the focus of fiscal policy.

Question 4

If the unemployment rate falls below the natural rate of unemployment (u*):

Accepted Answer

The answer of If the unemployment rate falls below the...

Question 5

The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 are both examples of:

Accepted Answer

Both the Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 were designed to increase government spending and/or reduce taxes in order to stimulate economic growth. This is a classic example of expansionary fiscal policy, which seeks to boost aggregate demand and promote economic activity.

Question 6

During which of the following situations would you advise for expansionary fiscal policy?

Accepted Answer

Expansionary fiscal policy is appropriate when the current unemployment rate is above the natural rate of unemployment, as it aims to increase aggregate demand and boost economic activity, thereby lowering unemployment. If the economy is already at full employment or experiencing rapid growth (choices A and B), expansionary fiscal policy could lead to inflationary pressures (choice C). Therefore, the appropriate choice is E.

Question 7

The second of two significant fiscal policy initiatives enacted by the government during the Great Recession,signed in February 2009 by President Barack Obama,was the ________ Act of 2009.

Accepted Answer

The American Recovery and Reinvestment Act of 2009 was a significant fiscal policy initiative enacted by the government during the Great Recession. It was signed in February 2009 by President Barack Obama and aimed to provide stimulus to the economy through various measures such as tax cuts, infrastructure spending, and healthcare investments.

Question 8

Why would a government want to use expansionary fiscal policy to help stimulate aggregate demand if,in the long run,we would expect prices to adjust and the economy to return to its long-run equilibrium on its own?

Accepted Answer

While prices may eventually adjust on their own, it can take a long time for this to happen. In the meantime, an economy may experience high unemployment and low economic growth, which can have negative consequences for individuals and businesses. Expansionary fiscal policy can help to stimulate aggregate demand in the short-run, which can result in increased economic activity and a quicker return to long-run equilibrium. Additionally, the adverse effects of expansionary fiscal policy may be outweighed by the potential benefits, depending on the circumstances of the economy.

Question 9

The Economic Stimulus Act of 2008 focused on ________,whereas the American Recovery and Reinvestment Act of 2009 focused on ________.

Accepted Answer

The answer of The Economic Stimulus Act of 2008 focused...

Question 10

During recessionary periods,outlays:

Accepted Answer

During recessionary periods, government outlays often increase due to higher spending on social programs like unemployment benefits, while tax revenues fall because of reduced economic activity and lower incomes.

Question 11

Refer to the following figure to answer the questions that follow.
 
-Which of the following would be the theoretical outcome of expansionary fiscal policy in the following aggregate demand-aggregate supply model?

Accepted Answer

The answer of Refer to the following figure to answer...

Question 12

Expansionary fiscal policy leads to:

Accepted Answer

Expansionary fiscal policy involves increasing government spending and decreasing taxes in order to stimulate economic growth. This leads to an increase in the budget deficit and national debt because the government is spending more money than it is receiving in taxes. Therefore, choice C is the correct answer.

Question 13

During economic expansions,outlays:

Accepted Answer

The answer of During economic expansions,outlays:
...

Question 14

Refer to the following figure to answer the questions that follow.
 
-Which of the following would be the theoretical outcome of contractionary fiscal policy in the following aggregate demand-aggregate supply model,where LRAS is long-run aggregate supply and SRAS is short-run aggregate supply?

Accepted Answer

The answer of Refer to the following figure to answer...

Question 15

The first of two significant fiscal policy initiatives enacted by the government during the Great Recession,signed in February 2008 by President George W.Bush,was the ________ Act of 2008.

Accepted Answer

The Economic Stimulus Act of 2008 was signed in February 2008 by President George W. Bush as a response to the economic slowdown. The Act provided tax rebates to households and businesses in order to stimulate spending and boost economic activity.

Question 16

When aggregate demand is low enough to drive unemployment above the natural rate:

Accepted Answer

The answer of When aggregate demand is low enough to...

Question 17

As part of the Economic Stimulus Act of 2008,the typical family of four received:

Accepted Answer

The Economic Stimulus Act of 2008 provided a rebate check for $1,800 to the typical family of four. This was meant to stimulate the economy by encouraging spending.

Question 18

Assume that the government is currently balancing the national budget so that outlays equal tax revenue.Then the economy slips into recession,and the government decides to increase government spending by $50 billion.The government must pay for this by borrowing; it must sell $50 billion worth of bonds.As a result,the federal budget will:

Accepted Answer

Increasing government spending by $50 billion beyond the current balanced budget would result in a deficit that is at least $50 billion (assuming tax revenue remains constant). This is because the government must borrow funds to finance the spending, resulting in an increase in the national debt. Therefore, the correct answer is choice (E).

Question 19

Contractionary fiscal policy occurs when the:

Accepted Answer

Contractionary fiscal policy aims to slow down economic expansion and decrease inflationary pressures. This is achieved by reducing government spending or increasing taxes, which reduces disposable income and thereby decreases aggregate demand.

Question 20

Assume that the government is currently balancing the national budget so that outlays equal tax revenue.Then the economy starts into an expansion,and the government decides to decrease government spending by $50 billion.As a result,the federal budget will:

Accepted Answer

During an economic expansion, tax revenues typically increase due to higher incomes and corporate profits. If the government decreases spending by $50 billion, the combination of increased tax revenue and decreased spending will likely result in a budget surplus of at least $50 billion.

Quiz 17: Fiscal Policy and Budget Deficits