Question

1) Which of the following is NOT an automatic stabilizer?

a) Unemployment insurance benefits

b) Public assistance

c) A supply-side tax cut

d) Food stamps

2) In general, we could say that

a) conservative economists favor a larger economic role for government and liberals favor a smaller role.

b) both liberals and conservatives favor a larger economic role for government.

c) liberal economists favor a larger economic role for government and conservatives favor a smaller role.

d) liberals and conservatives favor a smaller economic role for government.

3) To finance a government deficit,

a) government expenditures are lowered.

b) the government runs a budget surplus.

c) taxes are lowered.

d) money is borrowed.

4) To close a recessionary gap the policy should be to

a) raise G and raise taxes.

b) lower G and lower taxes.

c) lower G and raise taxes.

d) raise G and lower taxes.

5) When there is an inflationary gap there is

a) too much spending and taxes should be raised.

b) too much spending and taxes should be lowered.

c) too little spending and taxes should be raised.

d) too little spending and taxes should be lowered.

Answer 1

Answer: 1) the following is NOT an automatic stabilizer:

c) A supply-side tax cut

Automatic stabilizer means economy comes to the stabilization without government intervention or policy change. There is no change in spending and taxes by policymakers.   

2) In general, we could say that

c) liberal economists favor a larger economic role for government and conservatives favor a smaller role.

3) To finance a government deficit:

d) money is borrowed.

Deficit means expenditure more than revenue and to finance these expenditures government borrow money from various sources

4) To close a recessionary gap the policy should be to

d) Raise G and lower taxes

when potential GDP is greater than actual GDP recessionary gap occurs. The gap can be closed by increasing government spending and reducing taxes.

5) When there is an inflationary gap there is:

c) too little spending and taxes should be raised.

Inflationary gap means actual GDP is greater than potential GDP and it reduce the GDP government spending should be decreased and taxes should increase