Practice Questions
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What is one primary action a government can take to combat a recession through fiscal policy?
When the government spends more money, it helps create jobs and boosts the economy. Other options are incorrect because Some think lowering taxes will...
How does an increase in government spending during a recession typically affect the unemployment rate and aggregate demand?
When the government spends more money, it creates jobs. Other options are incorrect because Some might think that more spending leads to job loss; It'...
During a recession, which fiscal policy action is most likely to stimulate economic growth?
When the government spends more money, it creates jobs and helps businesses. Other options are incorrect because Some think that raising taxes helps p...
In the context of Keynesian economics, which fiscal policy action is most effective in reducing the unemployment rate during a recession?
Increasing government spending on infrastructure projects creates jobs. Other options are incorrect because Some think raising taxes helps pay off deb...
How can tax cuts during a recession influence economic recovery, considering the role of fiscal multipliers?
Tax cuts give people more money to spend. Other options are incorrect because Some think tax cuts only reduce money for the government; This idea sugg...
What is a common fiscal policy action taken by the government during a recession?
During a recession, people spend less money. Other options are incorrect because Some think raising taxes helps the government; It's a common belief t...
What is one of the main tools of fiscal policy that the government can use to combat a recession?
When the government spends more money, it helps create jobs and boosts the economy. Other options are incorrect because Some might think raising taxes...
What is one primary action a government can take to combat a recession through fiscal policy?
When the government increases spending, it puts more money into the economy. Other options are incorrect because Some think lowering taxes helps peopl...
A country is experiencing a recessionary gap and is considering various fiscal policy actions. Which of the following actions would most effectively stimulate economic activity and help restore full employment? Classify each action into one of the four categories: 'Tax Reduction', 'Increased Government Spending', 'Transfer Payments', or 'Ineffective Action'.
Increasing government spending on infrastructure creates jobs. Other options are incorrect because Some think that lowering taxes will always help; Ra...
A local government is facing rising unemployment and a decrease in economic activity due to a recent downturn. They are considering implementing a fiscal policy that involves both increasing government spending on public projects and cutting taxes for citizens. What is the likely outcome of these actions in terms of their impact on the economy?
When the government spends more and cuts taxes, people have more money to spend. Other options are incorrect because Some might think that spending mo...
Decreasing taxes is to increasing disposable income as increasing government spending is to what?
When the government spends more money, it helps people buy more things. Other options are incorrect because Some might think that government spending ...
If a government implements an increase in transfer payments during a recession, what is the primary underlying economic mechanism that is expected to drive an increase in aggregate demand?
When the government gives more money to people, they have more to spend. Other options are incorrect because This idea suggests that lower borrowing c...
Arrange the following fiscal policy actions in the order they should be implemented to effectively address a recessionary gap: A) Increase government spending, B) Decrease taxes, C) Raise transfer payments, D) Monitor economic indicators.
When the government spends more money, it creates jobs and boosts demand. Other options are incorrect because Some think lowering taxes is the best fi...
Which fiscal policy action is most effective in closing a recessionary gap in the short run?
When the government spends more money, it creates jobs and boosts demand. Other options are incorrect because Raising interest rates makes borrowing m...
If a government decides to increase spending during a recession, what is the expected immediate effect on the economy?
When the government spends more money, it puts cash into the economy. Other options are incorrect because Some might think that more spending will sca...
Which of the following fiscal policy actions can effectively help close a recessionary gap? Select all that apply.
To close a recessionary gap, the government needs to increase spending or support people directly. Other options are incorrect because Some think lowe...
In a recessionary gap, the government can stimulate economic activity by employing fiscal policy actions such as decreasing taxes or increasing government spending, which ultimately aims to restore __________ to full employment levels.
Potential real output is the maximum amount of goods and services an economy can produce. Other options are incorrect because Nominal GDP measures the...
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