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When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Fiscal policy

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is:

Discretionary Fiscal Policy

When changes in taxes and government spending occur in the economy without explicit action by Congress, such policy is:


Fiscal policy is enacted through changes in:

Taxation and government spending

The group that often initiates changes in fiscal policy is the:

Council of Economic Advisors

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):

Expansionary fiscal policy

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n)

Contractionary fiscal policy

The set of fiscal policies that would be most contractionary would be a(n):

Decrease in government spending and an increase in taxes

The intent of contractionary fiscal policy is to:

Decrease aggregate demand

The goal of expansionary fiscal policy is to increase:

Real GDP

If the government wishes to increase the level of real GDP, it might reduce:


If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Increased government spending or decreased taxation, or a combination of the two actions

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a:

Budget deficit

When government spending is increased, the amount of the increase in aggregate demand primarily depends on:

The size of the multiplier

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the:

Economy's MPS is small

Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues:

Decrease and transfer payments increase

If government tax revenues automatically change in a countercyclical direction over the course of the business cycle, this would be called a(n):

Built-in fiscal stabilization

The so-called "negative taxes" are better known as:

Transfer payments

Due to automatic stabilizers, when income rises, government transfer spending:

Decreases and tax revenues increase

Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget amendment that would require the Federal government to balance its budget during a recession would be:

Contractionary and worsen the effects of the recession

The last year when there was a surplus in the actual U.S. Federal budget was in:


The American Recovery and Reinvestment Act of 2009 included mostly:

Increases in government spending and decreases in taxes

One timing problem with fiscal policy to counter a recession is a "recognition lag" that occurs between the:

Start of the recession and the time it takes to recognize that the recession has started

One timing problem with fiscal policy to counter a recession is an "operational lag" that occurs between the:

Time fiscal action is taken and the time that the action has its effect on the economy

One timing problem with fiscal policy to counter a recession is an "administrative lag" that occurs between the:

Time the need for the fiscal action is recognized and the time that the action is taken

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n):

Recognition lag

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Administrative lag

Proponents of the notion of a "political business cycle" suggest that:

A possible cause of economic fluctuations is due to the use of fiscal policy for political purposes

State and local governments are limited in their ability to respond to recessions because of:

Constitutional and other requirements to balance their budgets

The crowding-out effect suggests that:

Increases in government spending may reduce private investment

The crowding-out effect arises when:

Government borrows in the money market, thus causing an increase in interest rates

The crowding-out effect works through interest rates to:

Decrease the effectiveness of expansionary fiscal policy

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