Select the best answer in each question. There is only one correct answer to eac

Question

Select the best answer in each question. There is only one correct answer to each quest Multiple selection will be taken as an incorrect answer. There is no negative marking f incorrect answer. 1. The use of government taxes and spending to alter economic outcomes is known as: A. Monetary policy. B) Fiscal policy. C. Income policy. D. Foreign-trade policy. 2. Fiscal policy works primarily through: A. Shifts of the AS curve. B. Shifts of the AD curve. C. The improvement of worker skills through subsidized training programs. D. Shifts of both AD and AS, as a result of changes in the interest rate. 3. Which of the following is generally considered a desirable outcome of fiscal policy? A. More jobs B. Higher unemployment rates C. A higher price level D. Greater deficits 4. Assume the economy is operating below full employment. Which of the following policy actions will allow aggregate spending to increase but will not increase the size of the government in the process? A. Increase government spending and leave tax rates unchanged

Explanation / Answer

1. Answer (B) - Fiscal policy

Fiscal policy is the tool by which government adjusts its spending and tax rates to influence economic outcomes.

2. Answer (B) - Shifts of the AD curve

Fiscal policy through variations in government expenditure and taxation affects public expenditure and hence, aggregate demand.

3. Answer (A) - More jobs

Obviously, higher unemployment rates, higher price level and greater deficits will not be desired by any government and any economy!!

*The picture for Question 4 and 5 is not clicked properly.

6. Answer (A) - Consumption or investment as a result of increase in government borrowing

The increase in government borrowing leads to a rise in interest rates which discourages private investment.

7. Answer (B) - Finance expenditures that exceed tax revenues

Deficit spending is the amount of government spending that exceeds the revenues. It enlarges government debt. After deficit occurs, ithe debt is financed through issuance of bonds. The use of fiscal policy will not necessarily be over and above the amount of revenues generated.

8. Answer (B) - The government should spend less than it collects in tax revenues

This is the only sensible way out.

9. Answer (A) - Federal revenues at full employment minus federal expenditures at full employment under current fiscal policy

Structurat deficit reflects the level of fiscal deficit at full employment level.

10. Answer (B) - Real GDP growth is negative, which reduces tax receipts in relation to government expenditure

People lose jobs during recession, which reduces the flow of tax revenues to the government. However, their dependency increases and in order to revive the economy, the government is obliged to spend more money.

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