1. Discretionary fiscal policy refers to:
A) any change in government spending or taxes which destabilizes the economy.
B) the authority which the President has to change personal income tax rates.
C) changes in taxes and government expenditures made by Congress to stabilize the economy.
D) the changes in taxes and transfers which occur as GDP changes.
Ans: C
2. “Discretionary” fiscal policy is so named because it:
A) is undertaken at the option of the nation’s central bank.
B) occurs automatically as the nation’s level of GDP changes.
C) involves specific changes in T and G undertaken expressly for stabilization purposes at the option of Congress.
D) is invoked secretly by the Council of Economic Advisors.
Ans: C
3. If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:
A) increasing government spending by $4 billion.
B) increasing government spending by $40 billion.
C) decreasing taxes by $4 billion.
D) increasing taxes by $4 billion.
Ans: A
4. Assume that aggregate demand in the economy is excessive, causing demand-pull inflation. Which of the following would be most in accord with appropriate government fiscal policy?
A) an increase in Federal income tax rates
B) an increase in the size of income tax exemptions for each dependent
C) passage of legislation providing for the construction of 8,000 new post office buildings
D) an increase in soil conservation subsidies to farmers
Ans: A
5. An appropriate fiscal policy for a severe recession is:
A) a decrease in government spending.
B) a decrease in tax rates.
C) appreciation of the dollar.
D) an increase in interest rates.
Ans: B
6. Which of the following represents the most expansionary fiscal policy?
A) a $10 billion tax cut
B) a $10 billion increase in government spending
C) a $10 billion tax increase
D) a $10 billion decrease in government spending
Ans: B
7. Which of the following fiscal actions would be the most effective in curbing inflation?
A) incurring a budget deficit by borrowing from the public
B) incurring a budget surplus which is used to retire debt held by commercial banks
C) incurring a budget surplus and impounding that surplus
D) incurring a budget surplus which is used to retire debt held by the public
Ans: C
8. If the economy has a full-employment budget surplus, this means that:
A) the public sector is exerting an expansionary impact upon the economy.
B) tax revenues would exceed government expenditures if full employment were achieved.
C) the actual budget is necessarily also in surplus.
D) the economy is actually operating at full employment.
Ans: B