Question : 16.5   Integrative Questions 1) Do automatic fiscal stabilizers eliminate business cycles? A) : 1240632

16.5   Integrative Questions

1) Do automatic fiscal stabilizers eliminate business cycles?

A) Yes

B) No, because they have no effect if the business cycle is the result of some unanticipated change.

C) No, but they do moderate business cycles.

D) No, they increase the likelihood that a business cycle occurs.

E) No, they make business cycle fluctuations more severe.

2) President Reagan often stated he preferred supply side policies. Which of the following federal government policies would be considered supply side?

i.Decrease the quantity of money.

ii.Lower taxes.

iii.Lower the interest rate.

A) i only

B) ii only

C) iii only

D) i and iii

E) i, ii, and iii

3) When the economy is in a recession, ________ taxes decrease while ________ spending increases and, as a result of this automatic fiscal policy, aggregate demand ________.

A) needs-tested; induced; decreases

B) induced; needs-tested; increases

C) induced; discretionary; is not changed

D) discretionary; needs-tested; increases

E) discretionary; induced; is not changed

4) Government tax revenues ________ during an expansion and ________ during a recession, which leads to larger budget deficits during the ________ phase of the business cycle.

A) increase; decrease; recession

B) increase; increase; recession

C) decrease; increase; expansion

D) decrease; decrease; expansion

E) increase; decrease; expansion

5) Need-based spending ________ during an expansion and ________ during a recession, which leads to larger budget deficits during the ________ phase of the business cycle.

A) increases; decreases; recession

B) decreases; increases; expansion

C) decreases; increases; recession

D) decreases; decreases; expansion

E) increases; decreases; expansion

6) Assume the federal government raises taxes (a contractionary fiscal policy). If the tax increase affects AS and AD equally, then real GDP will ________ and the price level will ________.

A) decrease; decrease

B) increase; be unchanged

C) increase; increase

D) decrease; be unchanged

E) increase; decrease

7) 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.

8) If an economy is in an equilibrium with an inflationary gap, policymakers 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.

9) 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.

10) 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