Question

1.	When countries have severe debt problems:
	fiscal policy is an especially good idea. expansionary fiscal policy can reduce real growth. it makes no difference for fiscal policy. they can continue to borrow forever without any adverse consequences.

2.	Increases in government spending financed through additional borrowing will typically:
	lead to higher taxes. lead to higher interest rates. stimulate both consumption and investment. provide more stimulus than when government spending is financed through higher taxes.

3.	In a recession, automatic stabilizers cause:
	a decrease in both tax revenues and government spending. a decrease in tax revenues and an increase in government spending. an increase in both tax revenues and government spending. an increase in tax revenues and a decrease in government spending.

4.	As a result of the multiplier effect, a tax cut causes a:
	larger shift of the aggregate demand curve to the left. smaller shift of the aggregate demand curve to the right. larger shift of the aggregate demand curve to the right. smaller shift of the aggregate demand curve to the left.

5.	The primary tools of fiscal policy are:
	money supply and money demand. government expenditure and money supply. government expenditure and taxation. taxation and interest rates.

Answer 1

1. Ans: expansionary fiscal policy can reduce real growth.

2. Ans: lead to higher interest rates.

3. Ans: a decrease in tax revenues and an increase in government spending.

Explanation:

During recession , the government adopts expansionary fiscal policy to increase aggregate demand in the economy. An expansionary fiscal policy refers to a decrease in taxation and an increase in government spending.

4. Ans: larger shift of the aggregate demand curve to the right.

Explanation:

The aggregate demand will increase as a result of the multiplier effect with a tax cut. As a result the aggregate demand curve will shift to the right in a grater extent.

5. Ans: government expenditure and taxation.

Explanation:

Generally fiscal policy is made by the central government of a country. It is related to government spending and taxation. There are two types of fiscal policy ( expansionary and contractionary )