Question

Fiscal Policy

1. When inflation rates drove up borrowing costs in the 1980s, the federal debt _____, because increased borrowing costs _______ the size of the budget deficit.

   	a.	rose; increased
   	b.	fell; increased
   	c.	rose; left unchanged
   	d.	fell; left unchanged

2. Examples of automatic stabilizers within the economy include all of the following EXCEPT

   	a.	Social Security payments to retirees
   	b.	unemployment benefits for laid-off workers
   	c.	food stamps for low-income families
   	d.	progressive income taxes

3. During expansions, automatic stabilizers are designed to moderate the increase in spending. Which of the following best describes automatic fiscal policy during an expansion?

   	a.	government outlays rise and tax revenues fall
   	b.	government outlays fall and tax revenues rise
   	c.	government outlays and tax revenues rise
   	d.	government outlays and tax revenues fall

4. Who sets fiscal policy?

   	a.	Congress and the Federal Reserve
   	b.	the U.S. Treasury and the U.S. Congress
   	c.	the U.S. Treasurey and the Federal Reserve
   	d.	Congress and the President

Answer 1

Ans 1:

a.

rose; increased

As the borrowing cost rises, the size of debt rises and it further increased the size of deficit.

Ans 2 :

a.

Social Security payments to retirees

It cannot be considered as an automatic stabilizer because the government pays social security payment irrespective of boom, recession or depression and amount does not fluctuate during different phases of business cycle.

Ans 3:

b.	government outlays fall and tax revenues rise

During expansion, government spends less and it collects more from tax revenue.

Ans 4:

d.	Congress and the President

While monetary policy is by the Federal Reserve