Term
The Employment Act of 1946 committed the federal government to intervening in the economy to
promote all of the following except
1. maximum employment.
2. maximum production.
3. maximum purchasing power.
4. maximum saving. |
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Definition
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Term
Which of the following would be classified as fiscal policy?
1. A state government raises taxes to fund education.
2. A state government cuts taxes to stimulate the economy of the state.
3. The federal government raises pollution taxes to encourage firms to reduce air pollution.
4. The Federal Reserve decreases interest rates to stimulate the economy.
5. The federal government raises taxes to fight inflation.
6. More than one of the above is correct. |
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Definition
5. The federal government raises taxes to fight inflation.
Fiscal policy is changes in federal taxes and/or purchases that are intended to achieve
macroeconomic policy objectives. |
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Term
Following a recession caused by pessimism, the automatic stabilizers
1. and the automatic mechanism would shift the aggregate demand curve right.
2. and the automatic mechanism would shift the short-run aggregate supply curve right.
3. would shift the aggregate demand curve right, while the automatic mechanism would shift the
short-run aggregate supply curve right.
4. would shift the short-run aggregate supply curve right, while the automatic mechanism would shift
the aggregate demand curve right. |
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Definition
3. would shift the aggregate demand curve right, while the automatic mechanism would shift the
short-run aggregate supply curve right.
Following a recession caused by pessimism, the automatic stabilizers would decrease the
taxes paid by households and firms and increase government spending on transfer payments to
households, which would shift the aggregate demand curve right. Also, following a recession caused
by pessimism, the lower price level would make workers willing to accept lower wages and inputproducing
firms willing to accept lower input prices, which would shift the short-run aggregate
supply curve right. |
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Term
Following inflation caused by optimism, the automatic stabilizers would _____ the taxes paid by
households and firms and _____ the transfer payments made by the government to households.
1. increase; increase
2. increase; decrease
3. decrease; increase
4. decrease; decrease |
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Definition
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Term
True or False?
The 2009 American Recovery and Reinvestment Act was a discretionary fiscal policy action. |
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Definition
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Term
True or False?
To fight a recession, Congress and the President could increase government purchases and/or decrease
individual and/or business income taxes. |
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Definition
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Term
True or False?
To fight inflation, Congress and the President could conduct expansionary fiscal policy. |
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Definition
FALSE.
To fight inflation, Congress and the President could conduct CONTRACTIONARY fiscal
policy. |
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Term
True or False?
The aggregate demand-aggregate supply models of expansionary monetary policy and expansionary fiscal
policy are identical because expansionary monetary policy and expansionary fiscal policy both increase
aggregate demand. |
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Definition
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Term
Which of the following describes a government policy that successfully fights inflation?
1. countercyclical contractionary monetary policy
2. countercyclical expansionary fiscal policy
3. procyclical contractionary fiscal policy
4. procyclical expansionary monetary policy |
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Definition
1. countercyclical contractionary monetary policy
Contractionary monetary or fiscal policy is intended to fight inflation. Countercyclical
monetary or fiscal policy successfully fights the business cycle, while procyclical monetary or fiscal
policy is late and destabilizes the economy. |
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Term
True or False?
Monetary and fiscal policies are procyclical if they are implemented before the automatic mechanism
returns the economy to long-run macroeconomic equilibrium. |
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Definition
FALSE.
Monetary and fiscal policies are COUNTERCYCLICAL if they are implemented before the
automatic mechanism returns the economy to long-run macroeconomic equilibrium. Monetary
and fiscal policies are procyclical if they are implemented AFTER the automatic mechanism returns
the economy to long-run macroeconomic equilibrium. |
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Term
True or False?
Monetary policy is less likely to be late than fiscal policy. |
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Definition
TRUE.
Monetary policy is must faster and easier to implement than fiscal policy. |
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Term
True or False?
Holding all else constant, government budget deficits occur automatically during recessions. |
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Definition
TRUE.
The automatic stabilizers lead to lower government tax revenue and higher government
spending during recessions. |
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Term
True or False?
To balance its budget during an expansion, the government would have to cut taxes and/or increase
spending. |
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Definition
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Term
True or False?
If the government balanced its budget during recessions and expansions, then the business cycle would
be less severe. |
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Definition
FALSE.
To balance its budget during a recession, the government would have to raise taxes and/or
decrease spending, which would decrease aggregate demand and make the recession worse. To
balance its budget during an expansion, the government would have to cut taxes and/or increase
spending, which would increase aggregate demand and make the inflation worse. |
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Term
True or False?
When the federal government runs a budget deficit, the Treasury must print more dollars to cover the
deficit. |
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Definition
FALSE.
When the federal government runs a budget deficit, the Treasury must borrow funds by
selling Treasury securities. |
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