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: 1. Fiscal policy is likely to be more effective
a. when there are less offsetting reductions in private sector spending
b. during abnormal times as opposed to more normal times
c. when government borrowing does not increase interest rates substantially
d. all of the above situations



2. The US government decides to follow expansionary fiscal policy. Congress is meeting in a late session on the last day before it breaks for vacation. One of the Representatives makes a statement, "It does not matter what we spend the money on, let's just pass the bill and go home." Which of the following statements best describes the accuracy of the Representative's belief?
a. It does matter what the government spends it on because it will shift either the long run aggregate supply curve or the aggregate demand curve
b. As long as there is an increase in government spending then the aggregate demand curve will always increase
c. It does matter what the government decides to purchase with the additional spending
d. An increase in government spending, as long as it is spent within the United Slates, will increase aggregate demand

3. In the extreme case of direct expenditure offsets the
a. increase in government expenditures are smaller than the decrease in consumption
b. increase in government expenditures are matched by a decrease in consumption
c. increase in government expenditures are larger than the decrease in consumption

4. Fiscal policy refers to
a. discretionary changes in government spending and taxes
b. changes in the money supply
c. changes in the interest rate
d. changes in the amount of physical capital in the economy

5. When an economist is using the term "discretionary" as in discretionary spending, they are referring to the
a. amount of government spending decided upon by Congress or the government's ruling body
b. consumption of households
c. money a government must spend on legislated items, such as Social Security payments

6. The government just passed a new tax bill that will be applied to the economy next year. Most people will not immediately feel the impact of this new tax bill and not adjust their W-2 tax forms. The impact of the new tax bill won't become apparent to them until the following April when their tax bills are due. This problem is referred to as the
a. effect time lag, and it makes it difficult to use automatic stabilizers to close a recessionary gap
b. recognition time lag, and it makes it difficult to use discretionary fiscal policy to close a recessionary gap
c. effect time lag, and it makes it difficult to use discretionary fiscal policy to close a recessionary gap
d. recognition time lag, and it makes it difficult to use automatic stabilizers to close a recessionary gap

7. How do automatic stabilizers work?
a. When an increase in national income occurs there will be an increase in income tax collections and an increase in unemployment compensation and welfare payments muting the increase in planned expenditures that would have otherwise resulted
b. When an increase in national income occurs there will be a reduction in income tax collections and a decrease in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted
c. When a decline in national income occurs there will be an increase in income tax collections and an increase in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted
d. When a decline in national income occurs there will be a reduction in income tax collections and an increase in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted

8. Expansionary fiscal policy that creates a budget deficit can lead to crowding out. This crowding out effect is exhibited by
a. increased taxes and increased investment
b. increased government expenditures and decreased investment
c. decreased government expenditures and decreased investment
d. increased government expenditures and decreased interest rates

9. Increased government spending crowds out investment due to
a. stricter government regulations
b. higher interest rates
c. an increased money supply
d. the existence of interest rate floors

10. Automatic stabilizers
a. are a component of discretionary fiscal policy
b. require new legislation to be implemented
c. cause changes in the economy without the action of Congress and the President
d. include the progressive income tax but not unemployment compensation

11. The purpose of automatic stabilizers is to
a. act as a safety measure preventing the government from using fiscal policy
b. lessen the impact of unemployment in a recession and slowdown inflation during an expansion
c. make sure people have a living wage
d. stabilize tax re
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