QUESTION 7

Which of the following is an appropriatefiscalpolicyresponse to a positive GDP gap?

1. Raise real interest rates
2. Raise income tax rates
3. Increase government spending
4. Lower real interest rates.

QUESTION 8

Our macroeconomic model suggests that after an increase in aggregate demand like that of the 1990s, the economy will self correct and return to a position where the GDP gap is zero. If this is correct, why should the government ever intervene with fiscal policy?

1. This is part of the government's "mission statement" as given in the constitution
2. People do not trust the theory behind the model.
3. Fiscal policy is profitable for banks.
4. It may take many years for the GDP gap to close on its own.

QUESTION 9

The textbook describes various types of lags that may slow the response of Congress when the economy enters a recession. Which of the following describes the time required for Congress to recognize that the economy is experiencing a recession?

1. legislative lag
2. recognition lag
3. implementation lag
4. presidential lag

QUESTION 10

If the economy is experiencing high unemployment, then the most appropriate government policy would be to

1. Shift the aggregate demand curve by using a tax increase coupled with spending cuts
2. Shift the aggregate demand curve by using tax increase coupled with more spending
3. Shift the aggregate demand curve by using a tax cut coupled with spending cuts

Shift the aggregate demand curve by using a tax cut coupled with more spending