Chapter 15.2 Flashcards
To reduce the size of economic fluctuations, the government could
continually increase government spending to shift the aggregate demand curve to the right.
keep government spending fixed to avoid shifting the aggregate demand curve.
make fewer permanent changes in government spending.
increase spending during a recession and decrease spending during an expansion.
increase spending during a recession and decrease spending during an expansion.
An increase in government spending will
increase real GDP in the short run and the long run.
increase real GDP in the long run and potential GDP in the short run.
have no effect on real GDP because taxes will increase.
increase the GDP to debt ratio.
increase real GDP in the short run.
increase real GDP in the short run.
Which of the following would cause the AD curve to shift to the left?
an increase in tax rates
an increase in unemployment compensation
an increase in potential GDP
an increase in military purchases
a decrease in sales taxes
an increase in tax rates
Increasing government purchases can contribute to higher inflation.
true
false
true
The objective of countercyclical fiscal policy is to
reduce unemployment.is pr
shift the aggregate demand curve so that real GDP equals potential GDP.
shift the inflation adjustment line so that real GDP is equal to potential GDP.
increase potential GDP.
reduce inflation.
shift the aggregate demand curve so that real GDP equals potential GDP.
When using discretionary fiscal policy to counter a fluctuation in the economy, policymakers should
use taxes as an instrument only if the economy is in a boom.
make sure that transfer payments are held constant.
make sure that changes in government purchases will have an effect on real GDP.
use government purchases as an instrument only if the economy is in a recession.
make sure the policy is carried out in a timely manner.
make sure the policy is carried out in a timely manner.
Discretionary fiscal policy
is the same as a tax increase.
does not require the involvement of Congress or the president.
requires action on the part of the president and Congress.
needs the approval of the Federal Reserve Board.
does not require changes in law.
requires action on the part of the president and Congress.
Automatic stabilizers refer to
taxes and government spending that change automatically whenever the state of the economy changes.
the self-adjusting nature of a market economy.
the Fed’s monetary policy rule.
the tendency for changes in inflation to return the economy to potential GDP.
the fact that Congress is called into session whenever there is a recession.
taxes and government spending that change automatically whenever the state of the economy changes.
Transfer payments are not affected by cyclical activity.
true
false
false
Policy rules tend to have the economy running a budget deficit during a recession and a budget surplus during an expansion.
true
false
true
All of the following are fiscal policy instruments except:
government bonds
government purchases
transfer payments
income taxes
sales taxes
government bonds
