Question

57) If pressure is put on the government to maintain a balanced budget during a recession. In this scenario, government would need to _____ taxes, which would cause aggregate demand to ____.

decrease; decrease

increase; decrease

decrease; increase

increase; increase

58) For the federal budget deficit to be lowered

the federal government's expenditures must be lower than its tax revenue

the Federal Reserve must reduce the money supply

the federal government must decrease its spending and increase net exports

the Federal Reserve must raise interest rates and lower the required reserve ratio

58) For the federal budget deficit to be lowered

the federal government's expenditures must be lower than its tax revenue

the Federal Reserve must reduce the money supply

the federal government must decrease its spending and increase net exports

the Federal Reserve must raise interest rates and lower the required reserve ratio

59) Which of the following Investment Banks agree to become Bank holding companies during Great Recession?

Merrill Lynch

Lehman Brothers

Bear Stearns

Goldman Sachs

Answer 1

57. During recession, government increases government spending and decreases tax rates. Now, to maintain a balanced budget government needs to decrease government spending and increase tax rates so that tax revenue equals government spending. Increase in tax rates will reduce disposable income and therefore Consumption spending will also decrease. This will decrease the Aggregate demand (as, AD = Consumption + investment + government spending + net export).

Answer : option B

58. Budget deficit occurs when government spending is more than it earns from tax revenue. So, to lower budget deficit, government expenditure must be lower than the tax revenue.

Answer: option A