Question(TCO 6) Fiscal policy refers to themanipulation of government spending and ta

(TCO 6) Fiscal policy refers to the

manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.

manipulation of government spending and taxes to achieve greater equality in the distribution of income.

altering of the interest rate to change aggregate demand.

fact that equal increases in government spending and taxation will be contractionary.

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Question 2. Question :

(TCO 6) Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

A Congressional proposal to incur a Federal surplus to be used for the retirement of public debt.

Reductions in agricultural subsidies and veterans’ benefits.

Postponement of a highway construction program.

Reductions in Federal tax rates on personal and corporate income.

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Question 3. Question :

(TCO 6) The crowding-out effect of expansionary fiscal policy suggests that

government spending increases at the expense of private investment.

imports replace domestic production.

private investment increases at the expense of government spending.

saving increases at the expense of investment.

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Question 4. Question :

(TCO 5) Which of the following would not shift the aggregate supply curve?

An increase in labor productivity

A decline in the price of imported oil

A decline in business taxes

An increase in the price level

Question 5. Question :

(TCO 6) Other things equal, a reduction in personal and business taxes can be expected to

: increase aggregate demand and decrease aggregate supply.

increase both aggregate demand and aggregate supply.

decrease both aggregate demand and aggregate supply.

decrease aggregate demand and increase aggregate supply.

Question 6. Question :

(TCO 6) The MPC can be defined as that fraction of a

change in income that is not spent.

change in income that is spent.

given total income that is not consumed.

given total income that is consumed.

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Question 7. Question :

(TCO 6) Dissaving means

the same thing as disinvesting.

that households are spending more than their current incomes.

that saving and investment are equal.

that disposable income is less than zero.

Question 8. Question :

(TCO 5) Refer to the graph. Which of the following factors will shift AD1 to AD3?

Graph Description

An increase in expected returns on investment

An increase in productivity

A decrease in real interest rates

A decrease in consumer wealth

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Question 9. Question :

(TCO 6) The multiplier is

1/MPC.

1/(1 + MPC).

1/MPS.

1/(1 – MPS).

Question 10. Question :

(TCO 5) The American Recovery and Reinvestment Act of 2009 was implemented primarily to

reduce inflationary pressure caused by oil price increases.

curb the overspending by households that contributed to the Great Recession.

bring the Federal budget back into balance.

stimulate aggregate demand and employment.

Question 11. Question :

(TCO 5) What effect would each of the following have on aggregate demand or aggregate

supply? Explain.

a. A decrease in real interest rates paid by the consumer

b. An increase in Labor Productivity as a result of a better-educated population

Question 12. Question :

(TCO 6) Why do some economists believe that tax cuts are critical to help revive an economy experiencing a recession?

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