Question

(1)
Which of the following is not a tool of fiscal policy? Government spending Taxes Tax incentives Private investment
(2)
Which of the following statements helps to explain why the economy can be slow to recover from a recession? Workers are less motivated because of reduced expectations, which reduces total output. There is not as much money in circulation to fuel new investment. Wages do not fall quickly, which delays an adjustment to a higher output level. Aggregate supply shifts inward proportionately, which leads to a “vicious cycle.”
(3)
Imagine that the economy is in a recession. Which one of the following tactics is a way to increase output by shifting aggregate demand outward? Raising taxes to increase the government surplus Increasing government spending Increasing the required reserve ratio Imposing tariffs on foreign goods
(4)
Which of the following statements helps to explain why the economy can be slow to recover from a recession? Workers are less motivated because of reduced expectations, which reduces total output. There is not as much money in circulation to fuel new investment. Wages do not fall quickly, which delays an adjustment to a higher output level. Aggregate supply shifts inward proportionately, which leads to a “vicious cycle.”
(5)
According to classical economists, if the economy is in a recession, what must the government do to increase output to the full-employment level? Nothing Reduce interest rates Increase government spending Provide a credit for household savings

Answer 1

1) Private investment. This is not under the control of government, directly or indirectly as it is private in nature

2) Wages do not fall quickly. This is because when prices are flexible but wages are not, aggregate supply adjust slowly to the price fall during recession

3) Increasing government spending will help in stimulating aggregate demand because this increases disposable income directly and via multiplier effect

4) Wages do not fall quickly. This is because when prices are flexible but wages are not, aggregate supply adjust slowly to the price fall during recession

5) Nothing