1) During an expansion, automatic stabilizers cause the federal deficit to a) remain unchanged. b) either...
1) During an expansion, automatic stabilizers cause the federal deficit to
a) remain unchanged.
b) either increase or decrease.
c) increase.
d) decrease.
2) An example of an automatic stabilizer is
a) changing the tax laws to increase the marginal tax rates.
b) the food stamp program.
c) the indexation of social security benefits to the consumer price index.
d) the interest the government pays on loans.
3) Which of the following is a correct sequence of events during a recession?
a) unemployment rises, income rises, tax revenue rises, unemployment benefits rise, and the budget deficit rises
b) unemployment rises, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises
c) unemployment falls, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises
d) unemployment rises, income falls, tax revenue rises, unemployment benefits fall, and the budget deficit falls
4) The total amount owed by the federal government to the public is the
a) net tax revenue.
b) fiscal drag.
c) federal debt.
d) federal budget deficit.
5) If the government wants to increase employment, government purchases should be ________ and/or taxes should be ________.
a) decreased; increased
b) increased; decreased
c) increased; increased
d) decreased; decreased
Homework Answers
1. Option D
Explanation: Automatic stabilizers decrease deficit in expansion and increase deficit in recession.
2. Option C
Explanation: Automatic stabilizers come into action automatically after certain economic even occurs.
3. Option B. unemployment rises, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises.
Explanation: In recession, output falls so people lose jobs and unemployment rises. As a result, income falls and tax revenue also falls. Since government needs to pay higher unemployment benefits, the government deficit rises.
4. c) federal debt.
Explanation: Federal debt is how much the federal government owes to the government.
5. b) increased; decreased
Explanation: This would result in an expansionary fiscal policy.
Add Answer to:
1) During an expansion, automatic stabilizers cause the federal
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