Question

Congress’ Economic Council recommends avoiding budget deficits to avoid crowding out private investment. The council appears to follow

the Keynesian approach to fiscal policy.

the supply side approach to fiscal policy.

the neoclassical approach to fiscal policy.

An increase in taxes through a new budget would

shift the aggregate demand left and increase the Gross Domestic Product at the new equilibrium.

shift the aggregate demand right as it rises and reduce the Gross Domestic Product at the new equilibrium.

shift the aggregate demand left and reduce the Gross Domestic Product at the new equilibrium.

A major concern of fiscal policy is

how changes to the money supply affect aggregate demand.

how changes to the budget affect the money supply.

how federal government taxing and spending affects aggregate demand.

How would a balanced budget amendment change the effect of automatic stabilizer programs?

They would increase in flexibility because they could kick in before Congress has time to adjust the budget.

They could no longer exist because the government would not have a way to pay for these programs.

They would lose flexibility because spending could not increase unless funds were there.

Ari’s income and federal income tax contributions are in the table below. What is the federal income tax in Ari’s country?

	Taxable Income	Federal Income Tax Payment
2016	$80,000	$10,000
2017	$94,000	$11,750

regressive.

progressive.

proportional.

Looking at a list of where tax revenue is being used for funding, it includes libraries, parks, police and fire protection, hospitals and roads. From this list, it can be accurately concluded that the funding entity for these services is

the Federal government.

from foreign and a state government.

a State government.

Answer 1

1. Congress Economic Council recommends avoiding budget deficits to avoid crowding out private investment. The council appears to follow

Correct option is :c

Neoclassical approach. Keynes believe in govt. involvement. Neo classical believe in govt. not intervening in markets.

2. An increase in taxes through a new budget would

Correct option is :c

Increase in taxes will reduce aggregate demand, AD shifts to left and hence real GDP also goes down.

3. A major concern of fiscal policy is

Correct option is :c

Fiscal policy is determined by govt. and has two tools: taxes and govt. spending.When govt. increases taxes then people will be left with less income and hence aggregate demand will decrease.

4. How would a balanced budget amendment change the effect of automatic stabilizer programs?

Correct option is :c

Automatic stabilisers are progressive taxes and unemployment benefits. They help to reduce economic cycle effects. When economy is in recessions then progressive taxes make people have more disposable income and unemployment benefits make unemployed people capable of keeping buying powers. When govt. decides to have a balance budget then it means that govt. may not spend more and hence auto stabilisers lose effectiveness.