1. One of the shortcomings of fiscal policy is that:
a. it has significant time lags which make it more effective.
b. it takes effect immediately, thus it is the best policy to use at crunch time.
c. it affects aggregate demand indirectly through the interest rate.
d. it has time lags and sometimes it may end up destabilizing the economy as a result of these lags.
2. Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which would most likely result?
a. Equilibrium real GDP will be more than anticipated.
b. The economy could move into a recession.
c. The economy will generate a larger inflationary gap than anticipated.
d. This will not have any adverse effects on the economy, since inflation has been abated.
3. Assume that the marginal propensity to consume is 0.8 and the potential output is $800 billion. The tax multiplier is ____, and the transfer multiplier is _____:
a. -0.8; 0.8
b. -0.2; 0.25
c. -5.0; 4.0
d. -4.0; 4.0
1. One of the shortcomings of fiscal policy is that:
a. it has significant time lags which make it more effective.
b. it takes effect immediately, thus it is the best policy to use at crunch time.
c. it affects aggregate demand indirectly through the interest rate.
d. it has time lags and sometimes it may end up destabilizing the economy as a result of these lags.
2. Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which would most likely result?
a. Equilibrium real GDP will be more than anticipated.
b. The economy could move into a recession.
c. The economy will generate a larger inflationary gap than anticipated.
d. This will not have any adverse effects on the economy, since inflation has been abated.
3. Assume that the marginal propensity to consume is 0.8 and the potential output is $800 billion. The tax multiplier is ____, and the transfer multiplier is _____:
a. -0.8; 0.8
b. -0.2; 0.25
c. -5.0; 4.0
d. -4.0; 4.0
Related textbook solutions
Related questions
The economy is in equilibrium, TP = TE, and Real GDP is $4,555 billion. The MPC is 0.80, the multiplier is operative, and idle resources exist at each expenditure round. Government purchases rise by $10 billion. As a result, the __________ curve shifts __________, inventory levels unexpectedly __________, business firms ___________ the quantity of goods and services they produce, and Real GDP __________ by __________.
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