Question 1

Figure 27-3 
-Decreasing government spending ________ the price level and ________ equilibrium real GDP.

Accepted Answer

Decreasing government spending reduces aggregate demand, which leads to a decrease in the price level and a decrease in equilibrium real GDP.

Question 2

Figure 27-4 
-Expansionary fiscal policy involves increasing government purchases or increasing taxes.

Accepted Answer

Expansionary fiscal policy involves increasing government purchases or decreasing taxes to stimulate the economy.

Question 3

To combat a recession with discretionary fiscal policy, Congress and the president should

Accepted Answer

To combat a recession with discretionary fiscal policy, Congress and the president should decrease taxes to increase consumer disposable income. This increases purchasing power and stimulates demand, which can boost economic growth. Lowering interest rates and increasing investment by increasing the money supply falls under monetary policy, not fiscal policy. Decreasing government spending to balance the budget may actually worsen a recession by decreasing aggregate demand. Raising taxes on interest and dividends would not provide enough of a boost to consumer spending to combat a recession.

Question 4

Expansionary fiscal policy will

Accepted Answer

Expansionary fiscal policy involves increasing government spending or decreasing taxes, which leads to an increase in disposable income and consumption. This increase in aggregate demand shifts the aggregate demand curve to the right.

Question 5

A decrease in individual income taxes ________ disposable income, which ________ consumption spending.

Accepted Answer

When individual income taxes decrease, disposable income increases because people have more money in their pockets. This increase in disposable income tends to increase consumption spending.

Question 6

Which of the following is considered contractionary fiscal policy?

Accepted Answer

Contractionary fiscal policy is aimed at decreasing aggregate demand and reducing inflationary pressures. Increasing income tax rates would reduce disposable income, decreasing consumption and investment spending by households and businesses.

Question 7

Tax increases on business income decrease aggregate demand by decreasing

Accepted Answer

Tax increases on business income would lead to a decrease in after-tax profits, which would in turn decrease business investment spending. This would decrease aggregate demand as businesses would be less likely to invest in new projects, resulting in lower overall economic activity. However, tax increases on business income would not directly impact consumption spending, government spending, or wage rates.

Question 8

Figure 27-2 
-Refer to Figure 27-2. In the graph above, if the economy is at point A, an appropriate fiscal policy by the Congress and the president would be to

Accepted Answer

Point A represents an economic recession, with a low level of output and high unemployment. To address this, the appropriate fiscal policy would be expansionary, aimed at increasing aggregate demand. Increasing government transfer payments, such as unemployment benefits or welfare, would directly inject money into the economy and increase spending by individuals, which would help to increase aggregate demand and stimulate economic growth. Lowering the discount rate of interest, executing an open market sale of government securities or increasing marginal income tax rates would not directly address the problem of low output and high unemployment.

Question 9

Figure 27-4 
-The problem causing most recessions is too little

Accepted Answer

In most cases, recessions are caused by a decrease in spending, which can lead to a decrease in production, income, and employment.

Question 10

If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Accepted Answer

An increase in government purchases would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply when the economy is falling below its potential real GDP. This is because an increase in government purchases would increase aggregate demand, which could restore the equilibrium level of output by increasing the demand for goods and services. Options A, C, and D would not directly address the issue of a below-potential real GDP and could even worsen the situation.

Question 11

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

Accepted Answer

Contractionary fiscal policy involves reducing government spending and/or raising taxes, which decreases disposable income and therefore decreases aggregate demand. This is often used as a tool to combat inflation by reducing the amount of money circulating in the economy, thus decreasing the pressure on prices to rise.

Question 12

Lowering the individual income tax will increase household disposable income and consumption spending.

Accepted Answer

When individual income tax is lowered, people have more disposable income which can lead to increased consumption spending.

Question 13

Figure 27-4 
-Refer to Figure 27-4. In the graph above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Congress and the president?

Accepted Answer

The answer of Figure 27-4 
-Refer to Figure 27-4. In...

Question 14

Which of the following is considered expansionary fiscal policy?

Accepted Answer

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

Question 15

Figure 27-2 
-Refer to Figure 27-2. In the graph above, if the economy is at point A, an appropriate fiscal policy by the Congress and the president would be to

Accepted Answer

Point A represents an unemployment gap, where the economy is experiencing a recessionary output gap. To close this gap, expansionary fiscal policy is required, which involves increasing government expenditures (answer C) to increase aggregate demand and stimulate economic growth. Decreasing the required reserve ratio (answer A) is a monetary policy tool and selling government securities (answer B) is a monetary policy tool used to decrease the money supply, which would be contractionary measures, and not appropriate in this situation. Decreasing transfer payments (answer D) would also be a contractionary fiscal policy measure and not appropriate in this situation.

Question 16

If the economy is growing beyond potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Accepted Answer

An increase in taxes would decrease disposable income and reduce consumption spending, leading to a decrease in aggregate demand and ultimately move the economy back towards long-run aggregate supply.

Question 17

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Accepted Answer

The answer of Contractionary fiscal policy to prevent real GDP...

Question 18

Figure 27-3 
-Refer to Figure 27-3. In the graph above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Congress and the president?

Accepted Answer

A decrease in income taxes would increase disposable income, leading to higher consumer spending and shifting the aggregate demand curve to the right, moving the economy from point A to point B.

Question 19

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

Accepted Answer

An increase in government purchases would directly increase aggregate demand and shift the AD curve to the right, leading to an increase in equilibrium real GDP.

Question 20

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Accepted Answer

Expansionary fiscal policy, such as increased government spending or tax cuts, is designed to stimulate economic activity. This leads to higher demand, which can push real GDP higher than it would be without such policy. However, the increased demand can also lead to higher inflation rates as prices rise in response to the greater demand for goods and services.

Quiz 27: Fiscal Policy

Figure 27-3 -Decreasing government spending the price level and equilibrium real GDP.

Figure 27-4 -Expansionary fiscal policy involves increasing government purchases or increasing taxes.

To combat a recession with discretionary fiscal policy, Congress and the president should

Expansionary fiscal policy will

A decrease in individual income taxes disposable income, which consumption spending.

Which of the following is considered contractionary fiscal policy?

Tax increases on business income decrease aggregate demand by decreasing

Figure 27-2 -Refer to Figure 27-2. In the graph above, if the economy is at point A, an appropriate fiscal policy by the Congress and the president would be to

Figure 27-4 -The problem causing most recessions is too little

If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

Lowering the individual income tax will increase household disposable income and consumption spending.

Figure 27-4 -Refer to Figure 27-4. In the graph above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Congress and the president?

Which of the following is considered expansionary fiscal policy?

Figure 27-2 -Refer to Figure 27-2. In the graph above, if the economy is at point A, an appropriate fiscal policy by the Congress and the president would be to

If the economy is growing beyond potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .

Figure 27-3 -Refer to Figure 27-3. In the graph above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Congress and the president?

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be and real GDP to be .

Quiz 27: Fiscal Policy

Figure 27-3 -Decreasing government spending ________ the price level and ________ equilibrium real GDP.

Figure 27-4 -Expansionary fiscal policy involves increasing government purchases or increasing taxes.

To combat a recession with discretionary fiscal policy, Congress and the president should

Expansionary fiscal policy will

A decrease in individual income taxes ________ disposable income, which ________ consumption spending.

Which of the following is considered contractionary fiscal policy?

Tax increases on business income decrease aggregate demand by decreasing

Figure 27-2 -Refer to Figure 27-2. In the graph above, if the economy is at point A, an appropriate fiscal policy by the Congress and the president would be to

Figure 27-4 -The problem causing most recessions is too little

If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

Lowering the individual income tax will increase household disposable income and consumption spending.

Figure 27-4 -Refer to Figure 27-4. In the graph above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Congress and the president?

Which of the following is considered expansionary fiscal policy?

Figure 27-2 -Refer to Figure 27-2. In the graph above, if the economy is at point A, an appropriate fiscal policy by the Congress and the president would be to

If the economy is growing beyond potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Figure 27-3 -Refer to Figure 27-3. In the graph above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Congress and the president?

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Figure 27-3 -Decreasing government spending the price level and equilibrium real GDP.

A decrease in individual income taxes disposable income, which consumption spending.

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be and real GDP to be .