Reading 27: Fiscal Policy - LOS e ～ Q6-10 style, class, 2008, black

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6.Automatic stabilizers work by:

A)   initiating changes in monetary policy without requiring action by the central bank.

B)   instituting counter-cyclical fiscal policy without the delays associated with policy changes that require legislative action.

C)   adjusting interest rates without the delays associated with policy changes that require action by the central bank.

D)   initiating legislative action designed to stimulate demand during the contraction phase of the business cycle and restrain demand during the expansion phase.

7.When an economy is in an economic expansion, automatic stabilizers will tend to alter government spending and taxation so as to:

A)   ensure that the budget will remain in balance.

B)   reduce the budget deficit (or increase the surplus).

C)   enlarge the budget deficit (or reduce the surplus).

D)   increase interest rates, thus stimulating aggregate demand.

8.The term "automatic stabilizers" refers to the fact that:

A)   legislators automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity.

B)   with given tax rates and expenditure policies, a rise in national income tends to produce a surplus, while a decline tends to result in a deficit.

C)   government expenditures and tax receipts automatically balance over the course of the business cycle, although they may be out of balance in any single year.

D)   an annual balanced budget automatically tends to offset the procyclical tendencies created by state and local finance and thereby stabilizes the economy.

9.When an economy dips into a recession, automatic stabilizers will tend to alter government spending and taxation so as to:

A)   reduce the budget deficit (or increase the surplus).

B)   enlarge the budget deficit (or reduce the surplus).

C)   ensure that the budget will remain in balance.

D)   reduce interest rates, thus stimulating aggregate demand.

10.Which of the following statements about achieving proper timing in fiscal policy is FALSE?

A)   Improvements in quantitative methods have made the occurrence of recessions or expansions quite predictable.

B)   There is usually a time lag between when a change in policy is needed and when the need is recognized by policy makers.

C)   The time required to change tax laws and government expenditure programs can be lengthy.

D)   Policy errors are inevitable due to unpredictable events.

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答案和详解如下：

6.Automatic stabilizers work by:

A)   initiating changes in monetary policy without requiring action by the central bank.

B)   instituting counter-cyclical fiscal policy without the delays associated with policy changes that require legislative action.

C)   adjusting interest rates without the delays associated with policy changes that require action by the central bank.

D)   initiating legislative action designed to stimulate demand during the contraction phase of the business cycle and restrain demand during the expansion phase.

The correct answer was B)

Automatic stabilizers reduce economic instability because these programs are already in place and do not involve the delays associated with fiscal policymaking.

7.When an economy is in an economic expansion, automatic stabilizers will tend to alter government spending and taxation so as to:

A)   ensure that the budget will remain in balance.

B)   reduce the budget deficit (or increase the surplus).

C)   enlarge the budget deficit (or reduce the surplus).

D)   increase interest rates, thus stimulating aggregate demand.

The correct answer was B)

When an economy is in an economic expansion, automatic stabilizers will tend to alter government spending and taxation so as to reduce the budget deficit (or increase the surplus).

8.The term "automatic stabilizers" refers to the fact that:

A)   legislators automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity.

B)   with given tax rates and expenditure policies, a rise in national income tends to produce a surplus, while a decline tends to result in a deficit.

C)   government expenditures and tax receipts automatically balance over the course of the business cycle, although they may be out of balance in any single year.

D)   an annual balanced budget automatically tends to offset the procyclical tendencies created by state and local finance and thereby stabilizes the economy.

The correct answer was B)

Automatic stabilizers are built-in fiscal devices that ensure deficits in a recession and surpluses during booms. Automatic stabilizers minimize the problem of proper timing.

9.When an economy dips into a recession, automatic stabilizers will tend to alter government spending and taxation so as to:

A)   reduce the budget deficit (or increase the surplus).

B)   enlarge the budget deficit (or reduce the surplus).

C)   ensure that the budget will remain in balance.

D)   reduce interest rates, thus stimulating aggregate demand.

The correct answer was B)

During a recession unemployment is high, so the government will pay out more in unemployment compensation at the exact time that tax receipts from corporations and individuals are low. This will increase the size of the deficit and also maintain aggregate demand during recessionary periods.

10.Which of the following statements about achieving proper timing in fiscal policy is FALSE?

A)   Improvements in quantitative methods have made the occurrence of recessions or expansions quite predictable.

B)   There is usually a time lag between when a change in policy is needed and when the need is recognized by policy makers.

C)   The time required to change tax laws and government expenditure programs can be lengthy.

D)   Policy errors are inevitable due to unpredictable events.

The correct answer was A)

One problem in achieving proper timing in fiscal policy is the inability to accurately predict a recession or expansion.