Question

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) 1) The use of government taxes and spending to alter economic outcomes is known as A) Incomes policy Q) Monetary policy B) Foreign trade policy. D) Fiscal policy A- 2) 2) If full-employment output exceeds equilibrium output, greater deficit spending will result A) Smaller recessionary gap C) Smaller inflationary gap. B) Larger recessionary gap. D) None of the choices are correct. 3) 3) With an increase in deficit spending, the A) Aggregate demand curve shifts to the right. B) U.S. exports increase. C) U.S. Treasury buys more bonds. D) Aggregate supply curve shifts to the right. 4) 4) In contrast to the structural deficit, the cyclical deficit reflects A) Changes in the "full-employment" deficit. B) Changes in discretionary fiscal policy. C) Fiscal policy decisions. D) Fluctuations in economic activity 5) 5) A decrease in private sector borrowing and spending caused by increased government borrowing is A) Crowding out. C) Crowding in. B) Fiscal stimulus. D) The GDP gap. 6) The structural deficit represents 6) A) A measure of the size of recessionary or inflationary gaps B) Federal revenues minus expenditures under current fiscal policy at current output. C) The difference between expenditures at fall employment and expenditures at cyclical unemployment. D) Federal revenues minus federal expenditures at full employment under current fiscal policy. 7) If the cyclical deficit shrank by $60 billion while the structural deficit increased by $35 7) billion, the total deficit A) Grew by $95 billion. C) Fell by $25 bilon B) Fell by $60 billion. D) Grew by $25 billion.
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Answer 1

1. The use of government taxes and spending to alter economic outcomes is known as Fiscal policy. Hence, option(D) is correct.

2. If full-employment output exceeds equilibrium output , greater deficit spending will result in a smaller recessionary gap. Hence,option(A) is correct.

3. With an increase in deficit spending, the aggregate demand curve shifts to the right. Because deficit spending occur when government spending exceeds tax revenues . Increased government spending or tax cut which create the need for deficit spending, will increase the aggregate demand. Hence, option(A) is correct.

4. In contrast to the structural deficit ,the cyclical deficit reflects fluctuations in economic activity . Hence, option(D) is correct.

5. A decrease in private sector borrowing and spending caused by increased government borrowing is crowding out. Hence, option(A) is correct.

6. The structural deficit represents federal revenues minus expenditures at full employment under current fiscal policy. Hence, option(D) is correct.

7. If the cyclical deficit shrank by $60 billion while the structural deficit increased by $35 billion ,the total deficit fell by $(60-35)= $25 billion. Hence, option(C) is correct.