C. Real GDP D. Unemployment 12. If the government wishes to increase the level o

Question

C. Real GDP D. Unemployment 12. If the government wishes to increase the level of real GDP, it might reduce: A. Taxes B. Transfer payments C. The size of the budget deficit D. Its purchases of goods and services 13. If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be: A. Increased government spending or increased taxation, or a combination of the two actions B. Increased government spending or decreased taxation, or a combination of the two actions C. Increased government spending or increased taxation, but not a combination of the two actions D. Decreased government spending or decreased taxation, or a combination of the two actions 14. The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a: A. Trade deficit B. Trade surplus C. Budget deficit D. Budget surplus Contractionary fiscal policy would tend to make a budget deficit become: A. Bigger B. Smaller 15. C. A trade deficit D. A trade surplus When government spending is increased, the amount of the increase in aggregate demand primarily depends on: A. The average propensity to consume B. The size of the multiplier C. Income taxes D. Exchange rates 16. find answers on mum 12.- 16 Please YOm 1

Explanation / Answer

12.D

The real gdp is given as Y = C+I+G+(X-M). So reduction government purchases of goods and services will help increase GDP.

13.B

Increased government spending or decreased taxation or a combination of both actions help to boost the economy in the sense that it increases individual spending by increasing employment opportunities and increasing purchasing power of individuals.

14.C

An expansionary fiscal policy implies increased government spending and lowering taxes. Under such circumstances government’s expenses increases more than its revenues. So there is a budget deficit.

15. B

Contractionary fiscal policy implies reducing government spending while raising taxes. Government’s revenue therefore grows more than expenses and so budget deficit is reduced.

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