Skip to main content
Pearson+ LogoPearson+ Logo

Introduction to Fiscal Policy quiz #1 Flashcards

Introduction to Fiscal Policy quiz #1
Control buttons has been changed to "navigation" mode.
1/12
  • Who is responsible for controlling fiscal policy in the United States?
    The federal government controls fiscal policy, setting levels of government spending and taxes.
  • What is an automatic stabilizer in fiscal policy?
    An automatic stabilizer is a government policy, like taxes or unemployment insurance, that automatically changes with the business cycle to stabilize the economy without new legislation.
  • Which of the following is a possible limitation of fiscal policy?
    Fiscal policy can face limitations such as time lags, political constraints, and difficulties in accurately predicting economic conditions.
  • Which of the following will most likely result from a decrease in government spending?
    A decrease in government spending will most likely lead to a lower GDP, as government spending is a component of GDP.
  • Which change would be consistent with an attempt by the federal government to reduce inflation using fiscal policy?
    Reducing government spending or increasing taxes would be consistent with an attempt to reduce inflation through contractionary fiscal policy.
  • Which of the following represents the most contractionary fiscal policy?
    The most contractionary fiscal policy is a combination of decreased government spending and increased taxes.
  • Which of the following policies represents an automatic stabilizer with respect to fiscal policy?
    Unemployment insurance is an example of an automatic stabilizer, as government spending on it increases during recessions and decreases during booms.
  • Which of the following is an example of an automatic fiscal policy stabilizer?
    Progressive income taxes are an example of an automatic stabilizer, as tax revenues rise in booms and fall in recessions without new legislation.
  • How would the U.S. government most likely react to a slump in the economy using fiscal policy?
    The government would likely increase spending or decrease taxes to stimulate aggregate demand and boost economic activity.
  • What steps has the federal government taken to reduce the burden of unfunded mandates related to fiscal policy?
    The federal government may provide funding or adjust requirements to help states manage the costs of unfunded mandates, though this is less directly related to fiscal policy than spending and taxation.
  • With expansionary fiscal policy, what is the goal for aggregate demand?
    The goal of expansionary fiscal policy is to increase aggregate demand by raising government spending or lowering taxes.
  • Which of the following are lag problems faced by the government related to fiscal policy?
    Lag problems include recognition lag (identifying economic issues), decision lag (choosing a policy), and implementation lag (putting the policy into effect).