The government's fiscal policy is its plan to regulate aggregate demand by manipulating:
taxation and spending
Which of the following would be an example or result of expansionary fiscal policy in action?
a budget deficit
Expansionary fiscal policy consists of:
increased government purchases, decreased taxes, increased transfer payments.
Contractionary fiscal policy consists of:
decreased government purchases, increased taxes, decreased transfer payments
How does a change in taxes primarily affect aggregate demand?
A tax change alters disposable income and consumption spending.
The main components of spending, which can cause changes in aggregate demand, are:
consumption, investment, government purchases, and net exports
If unemployment is the most significant problem in the economy, which of the following actions would be an appropriate fiscal policy response?
both A and C above
Which of the following is an appropriate fiscal policy response to high inflation?
none of the above
If government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?
Decrease government purchases of goods and services.
If government policy makers were worried about the inflationary potential of the economy, which of the following would not be a correct fiscal policy change?
Increase government purchases of goods and services.
You are a member of Congress when the economy is in a recession. If your goal is to achieve a fully employed labor force, which of the following fiscal policy scenarios should you follow?
Raise government purchases, reduce taxes, and/or increase transfer payments.
If the government sought to end a recession, which of the following would be an appropriate policy?
Decrease taxes and increase transfer payments.
Assume that the government is considering plans to increase aggregate demand in order to reduce unemployment. Which of the following would be effective?
Any of the above.
Which of the following combinations of changes would have a contractionary effect on aggregate demand?
An increase in taxes and a decrease in government purchases.