2. When the Federal government cuts taxes and increases spending to stimulate the economy during a period of recession, such actions are design to be
a. passive.
b. automatic.
c. countercyclical.
d. nondiscretionary.
3. If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be
a. increased government spending or increased taxation, or a combination of the two actions.
b. increased government spending or decreased taxation, or a combination of the two actions.
c. increased government spending or increased taxation, but not a combination of the two actions.
d. decreased government spending or decreased taxation, or a combination of the two actions.
4. Most economists believe that fiscal policy is
a. better than monetary policy for “fine-tuning” the economy.
b. better than monetary policy for month-to-month stabilization.
c. not as good as monetary policy for month-to-month stabilization.
d. not very good at pushing the economy in a particular direction.
5. Which of the following fiscal policy changes would be the most contractionary?
a. a $40 billion increase in taxes
b. a $10 billion increase in taxes and a $30 billion cut in government spending
c. a $20 billion increase in taxes and a $20 billion cut in government spending
d. a $30 billion increase in taxes and a $10 billion cut in government spending