Question 1
Which of the following is an example of a contractionary fiscal policy?
a
| An increase in the economy’s price level
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b
| An increase in government spending
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c
| An increase in the income tax rates
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d
| An increase in transfer payments
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e
| A new subsidy for certain business production
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Question 2
If the government of a country decides to ________ spending on infrastructure development and increase ________, then it is trying to implement a contractionary fiscal policy.
a
| decrease; education funding
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b
| increase; transfer payments
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c
| decrease; taxation
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d
| increase; public savings
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e
| increase; aggregate supply
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Question 3
Which of the following scenarios will hamper the effectiveness of the discretionary fiscal policy?
a
| The government took excessive time to assess the economic trends before agreeing on a policy solution.
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b
| The government immediately identified the problem and took quick action to correct the situation.
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c
| The government made accurate and reliable forecasting of economic trends.
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d
| The government determined that relying on automatic stabilizers would be sufficient to address the problem.
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e
| The government did nothing and fully depended on the automatic adjustment.
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