Question : 61) To eliminate a recessionary gap, the government can ________ : 1240626

61) 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

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

A) government 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) government 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.

63) 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.

64) 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

A) increase government expenditure and move the economy to a full-employment equilibrium at point c.

B) increase tax rates and move the economy to a full-employment equilibrium at point c.

C) increase government expenditure and move the economy to a full-employment equilibrium at point b.

D) increase 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.

65) Which of the following is a limitation of discretionary fiscal policy?

i.law-making lags

ii.estimating potential GDP

iii.income gap

A) i only

B) ii only

C) iii only

D) i and ii

E) i, ii, and iii

66) The use of discretionary fiscal policy is hampered by

i.difficulty of estimating the level of potential GDP.

ii.lack of accuracy of economic forecasts.

iii.the small impact tax cuts and increases in government expenditure have on aggregate demand.

A) i only

B) ii only

C) iii only

D) i and ii

E) i, ii, and iii

67) There are four limitations to the effectiveness of discretionary fiscal policy. Which item below is NOT one of these limitations?

A) shrinking area of law-maker discretion

B) law-making time lag

C) estimating potential GDP

D) fiscal multiplier

E) economic forecasting

68) The law-making time lag is best described as the time that it takes

A) Congress to realize that new laws must be passed to change taxes or spending.

B) a newly passed law to become the norm in daily lives.

C) the President to sign a bill sent from Congress.

D) a jury to render a verdict.

E) Congress to pass laws needed to change taxes or spending.

69) A reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP is that

A) economic forecasts consistently underestimate the impact of fiscal policy.

B) it is difficult to know whether real GDP is above or below potential GDP.

C) during a recession, politicians prefer increases in government spending over decreasing taxes.

D) government programs automatically move real GDP away from potential GDP.

E) government programs are always expansionary.

70) In order for the United States to use discretionary fiscal policy to deal with a recessionary gap,

A) the public must elect members of Congress that understand economics.

B) the President and Congress must agree on which taxes to hike.

C) time must pass in order for Congress to decide what taxes and government programs to change.

D) the President’s and Congress’s economic advisors must agree on the proper government programs to slash.

E) since 2002, the President has been given the authority to make up to a 10 percentage point change in government expenditure programs.