Question : 11) In order to reduce inflationary pressure the economy, what : 1238219

11) 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

12) 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.

13) 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

14) 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.

15) 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.

16) Aggregate demand changes when government expenditure on national defense increases by $100 billion. Aggregate demand ________ by ________ than $100 billion because government expenditure ________ induced expenditure. 

A) increases; more; increases

B) increases; more; decreases

C) decreases; more; decreases

D) increases; less; increases

E) decreases; less; increases

17) When the government cuts the income tax rate, the supply of labor ________, the demand for labor ________, and the equilibrium level of employment ________. 

A) increases; increases; increases

B) increases; decreases; increases

C) decreases; increases; increases

D) increases; does not change; increases

E) increases; does not change; decreases

18) When the government cuts the income tax rate, the real wage rate paid by employers ________ and the real wage rate received by workers ________ and potential GDP ________. 

A) decreases; decreases; increases

B) decreases; increases; decreases

C) increases; increases; increases

D) increases; decreases; increases

E) decreases; increases; increases

19) When there is a cut in payroll taxes, there is a(n) ________ in the tax wedge that lowers the cost of labor. This tax cut will ________ the quantity of labor demanded and ________ the quantity of labor employed. 

A) increase; increase; increase

B) decrease; increase; increase

C) decrease; decrease; increase

D) decrease; increase; decrease

E) increase; decrease; decrease

20) Income taxes create a wedge between the wage rate paid by ________ and received by workers and thereby ________ employment and ________ potential GDP. 

A) firms; lower; increase

B) firms; raise; increase

C) households; lower; decrease

D) firms; lower; decrease

E) firms; raise; decrease

21) A government budget deficit ________ the ________ interest rate and crowds out private investment, which ________ real GDP growth. 

A) raises; nominal; slows

B) raises; real; accelerates

C) lowers; real; slows

D) lowers; nominal; slows

E) raises; real; slows