Question

Fiscal Policy Typical problems with using fiscal policy to manipulate economic growth include all but which one of the following? a)Poor means to fine tune an economy and can turn out to be inflationary b)It is often implemented too slowly due to political process c) Is necessarily designed to benefit large firms rather than small firms d)Government inefficiency and waste lead to low effectiveness

Cyclical and Defensive Industries At the peak of an economic cycle you can expect a ________ industry to begin to outperform other industries while at the trough you can expect a _______ industry to begin to outperform other industries. a)defensive; cyclical b)financial; nonfinancial c)durables; nondurables d)cyclical; defensive

Answer 1

Fiscal policy is the policy by which the Government adjusts its tax rates to regulate the economy. A)It can cause inflation since high taxes can increase the prices in the economy. B)It can be a sslow process due to political red-tape since cutting public spending or increasing taxes will require to undergo a long process. D)Government may not be able to utilize the taxes well.

Correct option is C) The tax rates are uniform for all and hence the benefit does not really pass on to the large firms alone.

Answer is Cyclical./ defensive

The profitability of companies will vary as per the stage of economic cycle. A peak implies the movement from the end of an expansion to beginning of a contraction while a trough is the bottom of a recession. In a peak, the cyclical industry does better since the purchases of these goods can be deferred and hence during a recession the sales are low. At a trough the defensive industry begins to outperform others since the purchase of these goods cannot be deferred.