1 Which of the following is true a The multipliers of the go

1) Which of the following is true?

a) The multipliers of the government expenditures and taxes are easily calculated by the government.

b) Fiscal policy is usually not successful because the government cannot control most economic variables.

c) Fiscal policy cannot fix the economy overnight because tax and spending policies affect aggregate demand after some time.

d) Consumer spending immediately reacts to income tax cuts.

e) Both b and c.

2) In 2009-2010 fiscal policy debates,

a) Republicans voted against the stimulus package because they believed that the economy can rely on its self-correcting mechanism.

b) Democrats offered to reduce taxes as a part of the stimulus package.

c) Republicans liked the stimulus package and the majority of them voted for it.

3) Which of the following is true?

a) A recessionary gap cannot be closed completely because of sticky wages.

b) Empirical studies show that a recessionary gap can be closed automatically and quickly.

c) Wages decrease dramatically in the time of recession for reasons such as minimum wages, union contacts, and government restrictions.

d) Firms do not tend to reduce wages by much during a recession because they are afraid of losing their best workers.

e) Both a and d.

4) Which of the following is true?

a) The multipliers of the government expenditures and taxes are easily calculated by the government.

b) Fiscal policy is usually successful because the government can control most economic variables.

c) Fiscal policy cannot fix the economy overnight because tax and spending policies affect aggregate demand after some time.

d) Consumer spending immediately reacts to income tax cuts.

4.1) Contractionary fiscal policy

a) is designed to increase aggregate demand.

b) Is designed to decrease aggregate demand.

c) Is designed to increase aggregate supply.

d) Is designed to decrease aggregate supply.

e) a, and c.

Solution

1.

C

There are time lags that takes place during the implementation of the fiscal policy and getting the favourable results. So, overnight impact cannot be expected from fiscal policy.

2.

B

Tax reduction was on offer to support the industries.

3.

D

Wages are sticky in natures and employers fear of losing their best workers. So, they don’t reduce it much.

4.

C

4.1

B

Contractionary policies are intended to bring control upon the aggregate demand so that ugly buying habits are prevented.