Question :
121) Automatic fiscal stabilizers ________ the impact of demand or : 1384417
121) Automatic fiscal stabilizers ________ the impact of demand or supply shocks on the economy since government’s net tax revenues ________ during booms and ________ during recessions.
A) magnify; increase; decrease
B) magnify; decrease; increase
C) dampen; increase; decrease
D) dampen; decrease; increase
E) does not affect; are constant; are constant
122) Suppose the government implements a permanent reduction in the net tax rate in an effort to increase real GDP. One disadvantage of this policy is that
A) the effect of economic shocks on government revenues becomes more volatile, while the economy becomes more stable.
B) further reductions in the net tax rate will be required to maintain the effectiveness of the tax rate as an automatic stabilizer.
C) private investment is crowded out, which may reduce the future growth rate of potential output.
D) the effect of the automatic stabilizer is reduced and the economy will be more unstable.
E) —both C and D are correct.
123) The “paradox of thrift” refers to the understandable tendency of people who are worried about their economic situation to ________ their saving, but in aggregate this behaviour causes a ________ recession.
A) decrease, more severe
B) decrease; less severe
C) increase; more severe
D) increase; less severe
E) increase; shorter
124) In the long run, aggregate demand is ________ for determining real GDP, and the paradox of thrift ________.
A) not important; applies
B) not important; does not apply
C) the only influence; applies
D) the most important influence; does not apply
E) stable and important; applies
125) The paradox of thrift does not exist in the long run because
A) not everyone increases saving in the long run.
B) aggregate supply has an impact on real GDP only in the short run.
C) everyone increases consumption in the long run.
D) changes in aggregate demand have no impact on real GDP in the long run.
E) potential output is determined by changes in the price level.
126) In the basic AD/AS macro model, the “paradox of thrift” is only a short-run phenomenon because
A) consumers exhibit cyclical consumption behaviour.
B) in the long run output is determined by potential output.
C) savings are transformed into expenditures in the long run.
D) the marginal propensity to consume is fixed in the long run.
E) consumers base their consumption expenditures only on their lifetime income.
127) Many economists think discretionary fiscal policy is of limited effectiveness in stabilizing the economy because
1) the multiplier effects associated with fiscal policy take a long time;
2) government deficits tend to reduce the value of the multiplier;
3) there are long and uncertain lags in implementing fiscal policy.
A) 1 only
B) 2 only
C) 3 only
D) 1 and 2
E) 1 and 3
128) Given current limitations, fiscal policy as a macroeconomic stabilizer is more defensible the ________ the output gap being suffered, an argument supporting ________.
A) larger; fine tuning
B) larger; gross tuning
C) smaller; fine tuning
D) smaller; crowding out
E) larger; crowding out
129) Suppose the economy is experiencing a significant recessionary gap, but it has taken the government six months to determine that it will change fiscal policy. This is an example of
A) an execution lag.
B) fine tuning.
C) gross tuning.
D) a decision lag.
E) automatic fiscal stabilizers.
130) Which of the following statements about fiscal policy is the best description of “fine tuning”?
A) The government continuously alters its spending and taxing plans to hold real GDP at potential.
B) The government cuts taxes to remove a large and persistent recessionary gap.
C) The government increases its spending to reduce an inflationary gap.
D) The government decreases tax rates to decrease an inflationary gap.
E) The government uses automatic stabilizers to reduce any output gaps.
