1. A smaller crowding-out effect: a. increases the magnitude of a given fiscal p
ID: 1254985 • Letter: 1
Question
1. A smaller crowding-out effect:a. increases the magnitude of a given fiscal policy's effect oninterest rates and increases the
magnitude of its effects on net exports.
b. increases the magnitude of a given fiscal policy's effect oninterest rates and decreases the
magnitude of its effects on net exports.
c. decreases the magnitude of a given fiscal policy's effect oninterest rates and increases the
magnitude of its effects on net exports.
d. decreases the magnitude of a given fiscal policy's effect oninterest rates and decreases the
magnitude of its effects on net exports.
2. A larger crowding-out effect:
a. increases the magnitude of a given fiscal policy's effect onreal output in the short run and
increases the magnitude of its effects on investment.
b. increases the magnitude of a given fiscal policy's effect onreal output in the short run and
decreases the magnitude of its effects on investment.
c. decreases the magnitude of a given fiscal policy's effect onreal output in the short run and
increases the magnitude of its effects on investment.
d. decreases the magnitude of a given fiscal policy's effect onreal output in the short run and
decreases the magnitude of its effects on investment.
3. Due to crowding-out effects, other things being equal:
a. net exports and investment will tend to move in the samedirection as a change in
government purchases.
b. net exports and investment will tend to move in the oppositedirection from a change in
government purchases.
c. net exports will tend to move in the same direction as a changein government purchases
and investment will tend to move in the opposite direction.
d. net exports will tend to move in the opposite direction as achange in government
purchases and investment will tend to move in the samedirection.
4. Expansionary fiscal policy, other things being equal, will tendto:
a. increase interest rates.
b. increase investment.
c. increase net exports.
d. do both a. and c.
e. do both b. and c.
5. Which of the following propositions would a proponent ofsupply-side economics be most likely to
stress?
a. Higher marginal tax rates will lead to a reduction in the budgetdeficit and lower interest
rates, because they expand government revenues.
b. Higher marginal tax rates promote economic inefficiency andthereby retard aggregate
output, because they encourage investors to undertakelow-productivity projects with
substantial tax-shelter benefits.
c. Income redistribution payments will exert little impact on realaggregate supply, since they
do not consume resources directly.
d. A tax reduction will increase the disposable income ofhouseholds. Thus the primary
impact of a tax reduction on aggregate supply will stem from theinfluence of the tax
change on the size of the budget deficit or surplus.
Explanation / Answer
2. a 3. b 4. a 5. bRelated Questions
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