lesson 9 quiz - 1. Fiscalists (those advocating active...

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1. Fiscalists (those advocating active fiscal policy) assume that government, through taxation and spending, can influence the economy in a positive way. There is always all of the above in addition to risk is this approach. 2. Financing a deficit through borrowing (selling bonds rather than “creating” money ) may be less risky in the short run, but it will increase the public debt 3. International governments and individuals own about 25 percent of the public debt, increased significantly in recent years 4. One of the potential benefits of the borrowing that creates national debt is the economic growth (expanding PPF) that it can create if the money is invested wisely in public projects. 5. One of the true risks of high national debt is the crowding out of the use of Savings by the Private sector. 6. Assuming no change in taxes, an increase in government spending (G) of $100 billion with an MPC of 0.50 will add a total of $ 200 billion to the economy after the multiplier effect. 7. Assuming no change in government spending, an in crease in taxes of $100 billion with an MPC of 0.80 will subtract a total of $ 400 billion from the economy after the multiplier effect. 8. Increases in G will increase the economy’s GDP by causing a(n) injection and right shift in the AD. 9. In this example of a Keynesian driven recovery, Government borrowing increases by $ 100 billion in order to start an upward multiplier process. 10. There can be considerable longer term risk associated with the Keynesian approach that uses Government deficit spending as demonstrated in this example. ( True) 11. In this example of a Keynesian tax increase, the inflation was initially caused by the Government borrowing (and then spending) $_ 200 billion that had been “created” in the Financial Market. 12. When surplus funds are set aside (idling the excess) and government does not spend the money nor apply it to past debt, this action does not cause expansion or contraction. 13. The fiscal policy of government can have a multiplier impact on the economy 14. If MPC is 0.9, then the simple multiplier is 10 . 15. There is often a moderate amount of risk and uncertainty with fiscal policy because many variables can be changing at one time. 16. An industrialized nation with a large national debt would be unlikely to not pay its debt as this would have disastrous results in the global financial markets 17. In this example of a Keynesian driven recovery, the economy was initially stuck in recession with total unemployment of ten million people. 18. Discretionary fiscal policy is suggested by the President and allocated by
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This note was uploaded on 06/18/2011 for the course ECON 2302 taught by Professor Methenitis during the Fall '10 term at Richland Community College.

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lesson 9 quiz - 1. Fiscalists (those advocating active...

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