Chapter 15 Fiscal Policy

| November 9, 2018

45)
When the economy is producing its potential output, an increase in government
spending must necessarily reduce some component of private spending. This
phenomenon is called
A)
fiscal policy.
B)
crowding out.
C)
the multiplier effect.
D)
entitlement spending.

46)
Suppose the economy is operating below potential output. If policy makers try
to avoid a budget deficit by raising taxes or reducing government spending,
these actions would
A)
increase inflation.
B)
help pull an economy out of a depression.
C)
make a recession worse.
D)
negate the multiplier effect.

47)
Using expansionary policies to combat a recession would
A)
increase a budget deficit.
B)
increase a budget surplus.
C)
decrease discretionary spending.
D)
increase federal revenue.

48)
Transfer payments are excluded from GDP.

49)
Discretionary funds are typically used by the Executive Branch and Congress for
activist fiscal policies.

50)
Net interest payments made by the government depend on the total federal debt
held and on the level of interest rates.

51)
Taxes are the only mechanism by which the federal government earns money.

52)
The federal income tax on wages is the largest source of revenue for the
federal government.

53)
Income taxes are taxes paid on wages and investment income.

54)
Social insurance taxes are paid by corporations based on their profits.

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