Deck 16: Fiscal Policy

Question 1

When the government's outlays equal its tax revenue, then the budget

A) is in deficit.
B) is in surplus.
C) is balanced.
D) could be either in surplus or deficit.
E) is legal only because expenditures equal tax revenues.

Answer 1

C

Question 2

$$\begin{array} { c c c } & \begin{array} { c } \text { Government } \\\text { outlays } \\\text { (trillions of }\end{array} & \begin{array} { c } \text { Tax revenue } \\\text { (trillions of }\end{array} \\\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \\\hline 2005 & 0.75 & 0.80 \\2006 & 0.80 & 0.83 \\2007 & 0.87 & 0.86 \\2008 & 0.95 & 0.95 \\2009 & 1.06 & 1.02 \\\hline\end{array}$$
The table above gives a nation's government outlays and tax revenue for 2005 through 2009.

-During which years did the country have a budget surplus?

A) 2005 and 2006
B) 2009 only
C) 2008 only
D) 2007 and 2009
E) all except 2008

Answer 2

2005 and 2006

Question 3

The federal budget is defined as

A) a monthly statement of expenditure laws passed by the U.S.government.
B) a monthly statement of whether the U.S.government is in deficit or surplus.
C) an annual statement of U.S.government violations of international laws.
D) an annual statement of expenditures and tax revenues of the U.S.government.
E) an annual statement of what policy actions the U.S.government has pursued.

Answer 3

D

Question 4

The last U.S.president to be in office when the government had a budget surplus was

A) George H.Bush
B) George W.Bush
C) Ronald Reagan
D) Dwight D.Eisenhower
E) Bill Clinton

Question 5

When tax revenue ________ outlays is negative, then the government has a budget ________.

A) minus; surplus
B) divided by; surplus
C) minus; deficit
D) plus; deficit
E) plus; surplus

Question 6

If the federal government has a budget deficit, then it is definitely the case that

A) the tax revenue exceed government outlays.
B) the tax revenue and government outlays are equal.
C) the tax revenue is falling and government outlays are rising.
D) government outlays exceed tax revenue.
E) the tax revenue is rising and government outlays are falling.

Question 7

The government collects tax revenue of $100 million and has $105 million in outlays.The budget balance is a

A) surplus of $5 million.
B) deficit of $5 million.
C) surplus of $105 million.
D) deficit of $105 million.
E) surplus of $100 million and a deficit of $105 million.

Question 8

When tax revenue exceed the government's outlays, the budget

A) has a deficit and the national debt is increasing.
B) is balanced and the national debt is decreasing.
C) has a surplus and the national debt is decreasing.
D) has a surplus and the national debt is increasing.
E) None of the above because by law tax revenue cannot exceed the government's expenditures.

Question 9

If the federal government has a budget surplus, then it is definitely the case that

A) tax revenue exceeds government outlays.
B) tax revenue and government outlays are equal.
C) the tax revenue is falling and government outlays are rising.
D) government outlays exceed tax revenue.
E) the tax revenue is rising and government outlays are falling.

Question 10

In the United States for the year 2010, the federal government had a ________ so the national debt was ________.

A) budget deficit; increasing
B) balanced budget; not changing
C) budget surplus; decreasing
D) budget deficit; decreasing
E) budget surplus; increasing

Question 11

When government outlays exceed tax revenue, the situation is called a budget

A) with a negative balance.
B) deficit.
C) surplus.
D) debt.
E) with no balance.

Question 12

When tax revenues equal government outlays, the situation is referred to as

A) a balanced budget.
B) an equivalent budget.
C) an equal budget.
D) an equilibrium budget.
E) a legal budget.

Question 13

The government collects tax revenue of $100 million and has $105 million in outlays.The budget balance is a

A) surplus of $5 million.
B) deficit of $5 million.
C) surplus of $105 million.
D) deficit of $105 million.
E) surplus of $100 million and a deficit of $105 million.

Question 14

When tax revenue ________ outlays is positive, then the government has a budget ________.

A) minus; surplus
B) divided by; surplus
C) minus; deficit
D) plus; deficit
E) plus; surplus

Question 15

The use of the federal budget to achieve macroeconomic objectives of full employment and sustainable economic growth is

A) called fiscal policy
B) called monetary policy
C) done only when there is a budget surplus
D) called government GDP policy
E) done only when there is a budget deficit

Question 16

When tax revenues minus outlays is i. positive, the government has a budget surplus.
Ii) negative, the government has a budget deficit.
Iii) zero, the government has a balanced budget.

A) i, ii, and iii
B) i and ii only
C) ii and iii only
D) i only
E) iii only

Question 17

When the government's expenditures exceed its tax revenue, the budget

A) has a deficit and the national debt is increasing.
B) is balanced and the national debt is increasing.
C) has a surplus and the national debt is increasing.
D) has a deficit and the national debt is decreasing.
E) None of the above because by law the government's expenditures cannot exceed its tax revenue.

Question 18

$$\begin{array} { c c c } & \begin{array} { c } \text { Government } \\\text { outlays } \\\text { (trillions of }\end{array} & \begin{array} { c } \text { Tax revenue } \\\text { (trillions of }\end{array} \\\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \\\hline 2005 & 0.75 & 0.80 \\2006 & 0.80 & 0.83 \\2007 & 0.87 & 0.86 \\2008 & 0.95 & 0.95 \\2009 & 1.06 & 1.02 \\\hline\end{array}$$
The table above gives a nation's government outlays and tax revenue for 2005 through 2009.

-During which years did the country have a budget deficit?

A) 2005 and 2006
B) 2009 only
C) 2008 only
D) 2007 and 2009
E) all except 2008

Question 19

The government has a budget surplus if

A) there is no national debt.
B) tax revenue is greater than outlays.
C) government outlays are greater than tax revenue.
D) the budget is balanced.
E) a fiscal stimulus is being used to combat a recession.

Question 20

$$\begin{array} { c c c } & \begin{array} { c } \text { Government } \\\text { outlays } \\\text { (trillions of }\end{array} & \begin{array} { c } \text { Tax revenue } \\\text { (trillions of }\end{array} \\\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \\\hline 2005 & 0.75 & 0.80 \\2006 & 0.80 & 0.83 \\2007 & 0.87 & 0.86 \\2008 & 0.95 & 0.95 \\2009 & 1.06 & 1.02 \\\hline\end{array}$$
The table above gives a nation's government outlays and tax revenue for 2005 through 2009.

-During which years, if any, did the country have a balanced budget?

A) 2005 and 2006
B) 2009 only
C) 2008 only
D) 2007 and 2009
E) all except 2008

Question 21

The annual statement of the outlays, tax revenues, and surplus or deficit of the government of the United States is the federal

A) surplus record.
B) deficit record.
C) budget.
D) spending.
E) debt to the public.

Question 22

$$\begin{array} { c c c } & \begin{array} { c } \text { Country A } \\\text { Government } \\\text { outlays }\end{array} & \\& \begin{array} { c } \text { Tax revenue } \\\text { (trillions of } \\\text { (trillions of }\end{array} \\\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \\\hline 2005 & 0.75 & 0.80 \\2006 & 0.80 & 0.83 \\2007 & 0.87 & 0.86 \\2008 & 0.95 & 0.95 \\2009 & 1.06 & 1.02 \\\hline\end{array}$$
$$\begin{array} { c c c } & \begin{array} { c } \text { Country B } \\\text { Government } \\\text { outlays }\end{array} & \\& \begin{array} { c } \text { Tax revenue } \\\text { (trillions of } \\\text { (trillions of }\end{array} \\\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \\\hline 2005 & 1.05 & 1.10 \\2006 & 0.90 & 0.92 \\2007 & 0.87 & 0.88 \\2008 & 0.85 & 0.83 \\2009 & 0.70 & 0.75 \\\hline\end{array}$$

-The above table gives the government outlays and tax revenue from 2005 through 2009 for two countries.In 2007 country A had a ________ and country B had a ________.

A) budget deficit; budget deficit
B) budget deficit; budget surplus
C) balanced budget; budget deficit
D) budget surplus; budget surplus
E) budget surplus; budget deficit

Question 23

The national debt is

A) tax revenue minus government outlays.
B) government outlays minus tax revenue.
C) the amount borrowed by the government to finance past budget deficits.
D) the amount lent by the government of past budget surpluses.
E) the excess of this year's budget surplus minus this year's budget deficit.

Question 24

Since 2000, the U.S.government has generally had a government budget ________ and so the national debt has ________.

A) surplus; decreased
B) surplus; increased
C) deficit; decreased
D) deficit; increased
E) deficit; not changed

Question 25

$$\begin{array} { c c c } & \begin{array} { c } \text { Country A } \\\text { Government } \\\text { outlays }\end{array} & \\& \begin{array} { c } \text { Tax revenue } \\\text { (trillions of } \\\text { (trillions of }\end{array} \\\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \\\hline 2005 & 0.75 & 0.80 \\2006 & 0.80 & 0.83 \\2007 & 0.87 & 0.86 \\2008 & 0.95 & 0.95 \\2009 & 1.06 & 1.02 \\\hline\end{array}$$
$$\begin{array} { c c c } & \begin{array} { c } \text { Country B } \\\text { Government } \\\text { outlays }\end{array} & \\& \begin{array} { c } \text { Tax revenue } \\\text { (trillions of } \\\text { (trillions of }\end{array} \\\text { Year } & \text { 2005 dollars) } & \text { 2005 dollars) } \\\hline 2005 & 1.05 & 1.10 \\2006 & 0.90 & 0.92 \\2007 & 0.87 & 0.88 \\2008 & 0.85 & 0.83 \\2009 & 0.70 & 0.75 \\\hline\end{array}$$

-The above table gives the government outlays and tax revenue from 2005 through 2009 for two countries.In 2008 country A had a ________ and country B had a ________.

A) budget deficit; budget deficit
B) balanced budge; budget surplus
C) balanced budget; budget deficit
D) budget surplus; budget surplus
E) budget surplus; balanced budget

Question 26

When government outlays are less than tax revenues, the government has

A) a budget with a positive balance.
B) a budget deficit.
C) a budget surplus.
D) a budget with a negative debt.
E) an illegal budget because outlays must exceed tax revenues.

Question 27

The federal budget

A) is required to balance by law.
B) can have a surplus but not a deficit.
C) can have a deficit but not a surplus.
D) can have a deficit or a surplus but cannot be balanced.
E) can have a deficit, a surplus, or a balance.

Question 28

As contrasted to the Keynesian view, mainstream economists believe that ________ than Keynesian economists believe.

A) potential GDP is less important
B) any crowding out effect is smaller
C) the real GDP growth rate is larger
D) the effects from fiscal stimulus are weaker
E) the multiplier effect is larger

Question 29

The national debt is the amount

A) by which government tax revenue exceed outlays in a given year.
B) of debt outstanding that arises from past budget deficits.
C) by which government outlays exceed tax revenue in a given year.
D) of government outlays summed over time.
E) of all future entitlement spending.

Question 30

When the government's outlays exceed its tax revenue, the national debt

A) shrinks thanks to the budget surplus.
B) grows to finance the budget deficit.
C) shrinks thanks to the budget deficit.
D) grows to finance the budget surplus.
E) does not change because it has nothing to do with government outlays and tax revenue.

Question 31

Mainstream economists believe that Keynesian economist overstate the effect of the multiplier effect.Which of the following statements would a mainstream economists NOT consider to be accurate.

A) effects of a fiscal stimulus are small and short lived
B) effects of a fiscal stimulus are incapable of working fast enough to make a difference
C) a fiscals stimulus does not provide a 'free lunch' but does 'crowd out' private consumption expenditure and investment
D) a fiscal stimulus results in bigger government, lower potential GDP, and slower real GDP growth
E) a fiscal stimulus is a vital tool to fight recession and depression due to the multiplier effect

Question 32

The federal budget is decided upon by the

A) President of the United States and the Federal Reserve system.
B) President of the United States and the United States Treasury.
C) President of the United States and the United States Congress.
D) United States Congress and the Federal Reserve System.
E) the United States Treasury alone.

Question 33

National debt decreases in a given year when a country has

A) a budget deficit.
B) a balanced budget.
C) a budget supplement.
D) a budget surplus.
E) no discretionary fiscal policy.

Question 34

As contrasted to the mainstream view, Keynesian economists believe that ________ than mainstream economists believe.

A) potential GDP is smaller
B) the burden of government debt on future generations is larger
C) the real GDP growth rate is higher
D) fiscal stimulus is weaker
E) the multiplier effect is larger

Question 35

The national debt can only be reduced if

A) the federal budget is in deficit.
B) the federal budget is in surplus.
C) there are no tax multiplier effects.
D) the economy has a deflationary gap.
E) the economy has an inflationary gap.

Question 36

If tax revenue is $230 billion and the government's outlays are $235 billion, then the budget

A) deficit is $5 billion and government debt will remain the same.
B) surplus is $5 billion and government debt will increase by $5 billion.
C) deficit is $5 billion and government debt will increase by $5 billion.
D) deficit is $5 billion and government debt will decrease by $5 billion.
E) surplus is $230 billion and the budget deficit is $235 billion.

Question 37

If we look at the federal government budget over the past 40 years we see that

A) most years the government budget has been balanced.
B) only occasionally has the budget been in deficit.
C) most years the budget has been in deficit.
D) the government has been running a budget deficit since 1997.
E) most years the budget balance has not been calculated.

Question 38

When the government's outlays equal its tax revenue, the budget

A) has a deficit and the national debt is increasing.
B) is balanced and the national debt is not changing.
C) has a surplus and the national debt is increasing.
D) has a deficit and the national debt is decreasing.
E) has a surplus and the national debt is decreasing.

Question 39

Although ________ initially proposes and ultimately approves the budget, the discussion and amendment process rests with ________.

A) Congress; the President
B) the Senate; the President
C) Congress; the Federal Reserve
D) the President; Congress
E) the U.S.Treasury; Congress

Question 40

What two parts of the government determine the federal budget?

A) the Federal Reserve and the FOMC
B) the President and the Federal Reserve
C) the Congress and the Federal Reserve
D) the Congress and the President
E) the U.S.Treasury and the Federal Reserve

Question 41

The balanced budget multiplier is

A) equal to zero because taxes and government expenditure are changed to leave the budget balanced.
B) misnamed because it does not leave the budget balanced.
C) greater than zero and less than the government expenditure multiplier.
D) greater than zero and greater than the government expenditure multiplier.
E) less than zero, that is, it is negative.

Question 42

If the government reduces expenditure on goods and services by $30 billion, then aggregate demand

A) decreases by more than $30 billion and real GDP decreases.
B) decreases by $30 billion and real GDP decreases.
C) increases by $30 billion and real GDP increases.
D) increases and potential GDP increases.
E) increases by more than $30 billion and real GDP increases.

Question 43

If government expenditure on goods and services increase by $10 billion, then aggregate demand

A) increases by $10 billion.
B) increases by $10 billion multiplied by the government expenditure multiplier.
C) increases by $10 billion multiplied by the tax multiplier.
D) decreases by $10 billion.
E) decreases by $10 billion multiplied by the government expenditure multiplier.

Question 44

If government expenditure increases by $200 billion and taxes simultaneously increase by $200 billion, then aggregate demand

A) remains the same.
B) decreases no matter what happens to aggregate supply.
C) increases no matter what happens to aggregate supply.
D) increases only if aggregate supply increases.
E) increases only if aggregate supply decreases.

Question 45

The balanced budget multiplier applies when a $50 billion increase in government expenditure is financed by a $50 billion ________ in tax revenue and the balanced budget multiplier shows that in this case there is ________ effect on aggregate demand.

A) decrease; no
B) decrease; a positive
C) increase; no
D) increase; a positive
E) increase; a negative

Question 46

The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand.

A) tax; expenditure; does not change
B) expenditure; tax; does not change
C) expenditure; tax; decreases
D) expenditure; tax; increases
E) tax; expenditure; decreases

Question 47

The magnitude of the tax multiplier is smaller than the magnitude of the government expenditure multiplier because

A) a change in taxes does not change expenditures.
B) an increase in taxes decreases expenditures.
C) a decrease in government expenditure decreases tax revenue.
D) a change in taxes does not change expenditures by as much as the same size change in government expenditure.
E) a change in taxes creates additional induced taxes.

Question 48

The balanced budget multiplier is

A) positive because the magnitude of government expenditure multiplier is larger than the magnitude of tax multiplier.
B) negative because the magnitude of government expenditure multiplier is larger than the magnitude of the tax multiplier.
C) positive because the magnitude of government expenditure multiplier is smaller than the magnitude of tax multiplier.
D) equal to zero.
E) negative because the magnitude of the tax multiplier is larger than the magnitude of the government expenditure multiplier.

Question 49

The government expenditure multiplier and the tax multiplier are

A) identical in size.
B) different in size and the tax multiplier is larger.
C) different in size and the government expenditure multiplier is larger.
D) not comparable because the government expenditure multiplier applies to aggregate demand and the tax multiplier applies to aggregate supply.
E) not comparable because the government expenditure multiplier applies to aggregate supply and the tax multiplier applies to aggregate demand.

Question 50

Ignoring any supply-side effects, suppose the government is considering cutting taxes by $100 billion or increasing government expenditures on goods and services by $100 billion.Then

A) both policies would increase aggregate demand by the same amount.
B) both policies would increase aggregate demand but the tax cut has a smaller effect.
C) both policies would increase aggregate demand but the increase in government expenditure has a smaller effect.
D) the tax cut would decrease aggregate demand and the increase in government expenditure would increase aggregate demand.
E) the tax cut would increase aggregate demand and the increase in government expenditure would decrease aggregate demand.

Question 51

The government expenditure multiplier is used to determine the

A) extra scrutiny government action receives.
B) amount aggregate demand is affected by a change in government expenditure.
C) amount aggregate supply is affected by a change in government expenditure.
D) amount private consumption is decreased by government expenditure.
E) extent to which automatic stabilizers must be changed in order to avoid recessions.

Question 52

If government expenditures on goods and services increases by $20 billion, then aggregate demand

A) increases by $20 billion.
B) increases by more than $20 billion.
C) decreases by $20 billion.
D) decreases by more than $20 billion.
E) increases by less than $20 billion.

Question 53

If federal taxes are cut by $10 billion, aggregate demand

A) increases by $10 billion.
B) increases by $10 billion multiplied by the government expenditure multiplier.
C) increases by $10 billion multiplied by the tax multiplier.
D) decreases by $10 billion
E) decreases by $10 billion multiplied by the tax multiplier.

Question 54

If a change in the tax laws leads to a $100 billion decrease in tax revenue, then aggregate demand

A) increases by $100 billion.
B) increases by less than $100 billion.
C) increases by more than $100 billion.
D) decreases by $100 billion.
E) decreases by more than $100 billion.

Question 55

The tax multiplier is the

A) magnification effect of a change in taxes on aggregate demand.
B) magnification effect of a change in taxes on the budget deficit.
C) magnification effect of a change in taxes on government expenditures.
D) magnification effect of a change in taxes on aggregate supply.
E) magnification effect of a change in taxes on the national debt.

Question 56

The magnitude of the government expenditure multiplier is ________ the magnitude of the tax multiplier.

A) greater than
B) equal to
C) less than
D) not comparable to
E) greater than for expansionary policy and less than for contractionary policy

Question 57

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue, the effect of the increase in government expenditure on aggregate demand is

A) greater than the effect of the tax decrease.
B) equal to the effect of the tax decrease.
C) less than the effect of the tax decrease.
D) positive whereas the effect of the tax decrease is negative.
E) negative whereas the effect of the tax decrease is positive.

Question 58

A $100 million decrease in government expenditure on goods and services leads to an even larger decrease in aggregate demand because of

A) induced changes in consumption expenditures.
B) automatic fiscal policy.
C) induced changes in aggregate supply.
D) discretionary fiscal policy.
E) the reinforcing effect of monetary policy.

Question 59

If government expenditure on goods and services increase by $100 billion, then aggregate demand

A) increases by $100 billion.
B) increases by less than $100 billion.
C) increases by more than $100 billion.
D) remains unchanged.
E) decreases by more than $100 billion.

Question 60

Ignoring any supply-side effects, if government expenditure on goods and services increase by $10 billion and taxes increase by $10 billion, then real GDP ________ and the price level ________.

A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
E) does not change; does not change

Question 61

In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?

A) raise taxes
B) cut taxes
C) increase government expenditure on goods and services
D) cut interest rates
E) increase the quantity of money

Question 62

If an economy is in an equilibrium with an inflationary gap, policy-makers can use

A) discretionary fiscal policy and increase government expenditure.
B) automatic fiscal policy and increase government expenditure.
C) automatic fiscal policy and cut taxes.
D) discretionary fiscal policy and decrease government expenditure.
E) discretionary fiscal policy and cut taxes.

Question 63

To eliminate a recessionary gap, the government can ________ government expenditures on goods and services or ________ taxes.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) increase; not change

Question 64

Automatic stabilizers are defined as

A) actions taken by the President without Congressional consent to stabilize the economy.
B) actions taken by an act of Congress to stabilize the economy.
C) policy that stabilizes without the need for action by the government.
D) discretionary policy taken to stabilize the economy.
E) policy that has no multiplier effects.

Question 65

If the economy is in an equilibrium with real GDP less than potential GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously ________ taxes and ________ government expenditures on goods and services.

A) raising; increasing
B) raising; decreasing
C) cutting; increasing
D) cutting; decreasing
E) raising; not changing

Question 66

If an economy is at the short-run equilibrium illustrated by the figure above, a discretionary fiscal policy to adjust the economy to full employment is to

A) decrease taxes.
B) decrease the quantity of money.
C) increase government spending.
D) increase taxes and decrease government spending simultaneously.
E) increase the quantity of money.

Question 67

A decrease in taxes should be applied in a situation with

A) a recessionary gap.
B) a inflationary gap.
C) low unemployment.
D) high demand for goods and services.
E) no tax multiplier.

Question 68

If the economy has been producing at a point where real GDP is less than potential GDP, what fiscal policy can the federal government use to restore real GDP to potential GDP?

A) cut government expenditure on goods and services
B) increase taxes
C) cut taxes
D) raise the interest rate
E) decrease the quantity of money

Question 69

Ignoring any supply-side effects, to close a recessionary gap of $100 billion with a government expenditure multiplier of 5, the government could

A) increase government expenditure on goods and services by $100 billion
B) increase government expenditure on goods and services by $20 billion.
C) raise taxes by $100 billion.
D) raise taxes by more than $20 billion.
E) decrease government expenditure on goods and services by $20 billion.

Question 70

If the economy is in equilibrium with real GDP less than potential GDP, there is ________ gap and a fiscal policy that ________ is appropriate.

A) an inflationary; increases aggregate demand
B) an inflationary; decreases aggregate demand
C) a recessionary; increases aggregate demand
D) a recessionary; decreases aggregate demand
E) a recessionary; increases potential GDP

Question 71

An economy is at a short-run equilibrium as illustrated in the above figure.An appropriate fiscal policy option to move the economy to full employment is to increase

A) government expenditure and move the economy to a full-employment equilibrium at point c.
B) tax rates and move the economy to a full-employment equilibrium at point c.
C) government expenditure and move the economy to a full-employment equilibrium at point b.
D) tax rates and move the economy to a full-employment equilibrium at point b.
E) lower the interest rate by increasing the quantity of money and move the economy to a full-employment equilibrium at point b.

Question 72

Which of the following is an example of a fiscal stimulus?

A) decrease in government expenditure on goods and services
B) decrease in transfer payments
C) increase in taxes
D) decrease in taxes
E) none of the above

Question 73

Ignoring any supply-side effects, to close an inflationary gap of $100 billion with a government expenditure multiplier of 5, the government could

A) decrease government expenditure on goods and services by $100 billion
B) decrease government expenditure on goods and services by $20 billion.
C) lower taxes by $100 billion.
D) lower taxes by more than $20 billion.
E) increase government expenditure on goods and services by $20 billion.

Question 74

In order to help the economy recover from a recession using fiscal policy, the government can ________ so that aggregate demand increases.

A) cut taxes
B) raise taxes
C) cut government expenditure on goods and services
D) raise interest rates
E) decrease the quantity of money

Question 75

If the government uses fiscal policy to close a recessionary gap, government

A) expenditure must be increased by more than the gap because of the government expenditure multiplier.
B) taxes must be cut by more than the gap because of the tax multiplier.
C) expenditure can be increased by less than the gap because of the government expenditure multiplier.
D) taxes can be raised by less than the gap because of the tax multiplier.
E) taxes must be raised by more than the gap because of the tax multiplier.

Question 76

Suppose the economy is in an equilibrium in which real GDP is less than potential GDP.To increase real GDP, the government can use a fiscal stimulus of

A) increasing taxes only.
B) decreasing government expenditure only.
C) decreasing taxes and/or increasing government expenditure.
D) decreasing government expenditure and simultaneously increasing taxes.
E) increasing the quantity of money.

Question 77

When an economy faces an inflationary gap, an appropriate fiscal policy is to

A) decrease government expenditure.
B) decrease taxes.
C) increase aggregate demand.
D) increase the quantity of money.
E) decrease the quantity of money.

Question 78

To eliminate an inflationary gap using fiscal policy, the government could

A) increase government expenditure on goods and services and simultaneously increase taxes by an equal amount.
B) only decrease taxes.
C) increase government expenditure on goods and services and simultaneously decrease taxes by an equal amount.
D) increase taxes.
E) decrease the quantity of money.

Question 79

Ignoring any supply-side effects, if government expenditure on goods and services decrease by $10 billion and taxes decrease by $10 billion, then real GDP ________ and the price level ________.

A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
E) does not change; does not change

Question 80

Ignoring any supply-side effects, when taxes are hiked, real GDP ________ and the price level ________.

A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
E) decreases; does not change