1. Consider the following statement:

"During a recession governments should prevent the fiscal deficit from rising."

In light of the model in chapter 3 and of our discussion about automatic stabilizers, do you agree or disagree with this statement? State your answer in the box below and be sure to briefly justify it. An adequate justification is needed for you to get credit for this question.

Hint: The fiscal deficit is defined as public spending on transfers, goods and services minus tax revenues (i.e. the fiscal deficit is equal to G-T GT).

2.. In the definition of Gross National Expenditures (GNE), government spending (i.e. G

G ) includes (choose 1):

Government expenditures on social security and unemployment benefits.

Government expenditures to fund public safety agencies.

Government expenditures on interest on public debt.

All of the above.

3 Which is an effect of automatic fiscal stabilizers?

They reduce the impact of a decline in aggregate expenditures on the government's budget balance.

They amplify the impact of an increase in aggregate expenditures on private disposable income.

They reduce the impact of a decline in aggregate expenditures on private disposable income.

None of the above.