21) During recessionary gaps, government revenue automatically a) rises because

Question

21) During recessionary gaps, government revenue automatically a) rises because of the progressive income tax system b)falls because of the progressive incom etax system. c) falls because of programs such as unemployment insurance and Medicaid. d) rises because of programs such as unemployment insurance and Medicaid. 22) Which of the following would be classified as fiscal policy? a) A state government increases taxes to decrease consumption of sugary soft drinks. b) The federal governm ent passes tax cuts to encourage firms to reduce air pollution. c) States increase taxes to fund education. d) The federal governm ent cuts taxes to stimulate the economy. e) The Federal Reserve cuts int erest rates to stimulate the economy. 23) The Federal Reserve can simult aneously reduce the inflation rate and increase unemployment rates a) True b) False 24) One of the monetary policy go als of the Federal Reserve is low taxes. a) True b) False 25) The decrease in government spending on food stamps to low income families during an expansion is an example of a) automatic monetary policy b) discretionary monetary policy c) discretionary fiscal policy. d) an automatic stabilizer

Explanation / Answer

21> c

Reason

During recessionary gap, the government spending is more than the revenue. The revenue is low because of the increase in the unemployment or other benefit in that period.

22> d

Reason

Fiscal policy is monitored by the goverrnment and not by the bank, so the tax cut should be done by the government.

23> b

It is false because it will contradict the Philips curve,

24> b

Lower taxation is never the objective.

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