Question

1. Fill in the blanks: Unemployment benefits act as an "automatic stabilizers" (at least from a Keynesian point of view) because they cause ___ to automatically go ___ when the economy starts to fall into a recession.

A) taxes ; up

B) government spending ; up

C) government spending ; down

D) taxes ; down

2. Fill in the blanks: Progressive taxation acts as an "automatic stabilizers" (at least from a Keynesian point of view) because it causes ___ to automatically go ___ when the economy starts to fall into a recession.

A) taxes ; up

B) government spending ; up

C) government spending ; down

D) taxes ; down

3. Discretionary fiscal policy may be subject to various lags. Which of the following best illustrates the "recognition" lag to discretionary fiscal policy?

A) Policymakers think a recession may be happening, but they decide not to take action until they are sure.

B) Policymakers are in the process of proposing policy measures to deal with a recession.

C) Policymakers agree to a policy, but it will be several months before the policy is implemented.

D) Policymakers implement a policy, but it will be several months before it starts working.

E) Policymakers implement a policy that works, but they don’t receive the recognition they deserve.

4) Fill in the blanks: A "recession" is a period of time when unemployment is ____, employment is ____, and GDP is ____.

A) high; low; low

B) low; high; low

C) low; low; high

Answer 1

1) option B is correct. Recession is a time period in which government spending should be increased in order to pacify the severity. Automatic stabilizers such as unemployment benefit automatically increase during recession because unemployment is increased. this implies that government spending is increased during recession through automatic stabilizers.

2) option d is correct. Taxes are automatically reduced because income levels are reduced during recession. When there is a progressive taxation in system lower income levels bear low taxes which means as the income is it used the tax amountalso reduces which somehow increases the disposable income and pacify the severity of recession.

3) option A is correct. It is basically the delay in recognition of a recession.

4) option A is correct