1. Discretionary fiscal policy is ______.

privatized

localized

deliberate

2. A change in ______ will ______ affect aggregate demand.

personal taxes; indirectly

business taxes; directly

investment spending; indirectly

3. How will government passage of tax cuts affect total purchases?

Total purchases will increase.

Total purchases will be unchanged.

Total purchases will vary unpredictably.

4. Suppose that earlier this year the government increased purchases of defense equipment by one billion dollars. We can assume that total purchases will ______.

increase by a little more than one billion dollars

increase by exactly one billion dollars

increase by much more than one billion dollars

5. Tax cuts targeting consumers and investors can stimulate ______ of aggregate demand.

neither the C nor the I component

only the I component

both the C and the I component

6. Tom sits at the diner and complains that there are too many government programs that give money to lazy people who do not work. He claims that there is no incentive for them to work because the government will provide for them either way. Tom most likely believes in ______.

supply-side economics

progressive taxation

higher taxation

7. Fiscal policy was used ______ in the 1980s and 1990s due to fear of creating ______.

frequently; budget surpluses

frequently; budget deficits

infrequently; budget deficits

8. Budget surpluses in the late 1990s led to ______.

tax increases and increased government spending

tax decreases and decreased government spending

tax decreases and increased government spending

9. The crowding-out effect is mainly an issue ______.

when production falls short of potential

in the short run

in the long run

10. The political process in a democratic country makes fiscal policy ______.

totally ineffective

take longer to implement

completely effective

11. Discretionary fiscal policy is likely to be most effective during times of ______.

moderate contraction

normal conditions

severe recession