1. An expansionary fiscal policy might not be as successful as planned by the go

Question

1.   An expansionary fiscal policy might not be as successful as planned by the government if, meanwhile 1

(a) imports increase
(b) the stock market crashes and hence consumption decreases

(c) physical investments (I) decrease

(d) all of the above

2.   The diference between M1 and M2 is given, mostly, by

(a) bills and coins in circulation

(b) checking accounts

(c) saving accounts

(d) gold and silver

3.   The reason why proportional taxation is called ”an automatic stabilizer” is because
(a) it increases the multiplier and hence makes the economy over-expand during a boom

(b) it stabilizes the MPC of the agents, which, otherwise, will take values above 1
(c) it reduces the impact of both positive and negative shocks on economic activity

(d) it automatically makes everybody’s income the same.

Explanation / Answer

1.(d) all of the above

2.(b) checking accounts

M2 consists of not only near money but also checking deposits

3.(c) it reduces the impact of both positive and negative shocks on economic activity

in a progressive taxation structure, the share of taxes in national income falls when the economy is booming and rises when the economy is in a slump. This has the effect of cushioning the economy from changes in the business cycle.

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