Fiscal Policy

Which of the following is an example of an automatic stabilizer?

• Extension of the child tax credit for households

• More people are applying for unemployment and food stamps during a recession

• Pandemic relief bill arranged for families to encourage spending

• Congress decreases the tax rate for high income earners

An appropriate fiscal policy to combat a recession would be to increase which of the following?

• Interest rates

• The money supply

• Taxes

• Government spending

Which of the following would cause AGGREGATE DEMAND to INCREASE?

• Increase in government spending on the military

• Increase in imported goods

• Government subsidy on agricultural industry

• Country enters a civil war

Which of the following would cause SHORT RUN AGGREGATE SUPPLY to INCREASE?

• Increase in government spending on roads and hospitals

• Increase in minimum wage

• Increase in income tax

• Decrease in tax on businesses

What is the criticism of deficit spending (Keynesian theory)?

• It doesn't help the economy recover fast enough

• It encourages savings and not spending

• It causes an increase in national debt

• It only helps the wealthy

An increase in personal income taxes will cause aggregate demand and supply to change in which of the following ways in the short run?

• AD: No change

  AS: Decrease

• AD: Decrease

  AS: No change

• AD: Decrease

  AS: Increase

• AD: Increase

  AS: No change

Classical theory says that the economy will correct itself when in a recessionary gap by

• AD increasing eventually

• LRAS increasing eventually due to increase in capital stock

• SRAS increasing eventually as wages decrease

• SRAS decreasing eventually as wages increase

Which of the following is a reason why self-correction in the economy takes a long time? (In the long run we are all dead)

• Wages are sticky in the short run

• Wages are flexible in the short but sticky in the long run

• Congress has a hard time compromising on policy

• The policy is expensive!

The combination of expansionary fiscal policy measures that would have the greatest effect is

• increasing gov spending and increasing taxes

• increasing gov spending and decreasing taxes

• decreasing gov spending and increasing taxes

• increasing gov spending and keeping taxes the same

Factors that shift the LRAS curve to the right include all of the following EXCEPT

• increase in the number of resources

• increase in the productivity of resources

• economic growth

• increase in price level