ECON 103 FINAL NORTON HOMEWORK QUESTIONS AND ANSWER
Chapter 16:
Which of the following are expansionary fiscal policies?
The impact of fiscal policy is limited by crowding-out. Which of the following events represent
crowding-out with an expansionary fiscal policy?
,During the periods 2001–2002 and 2007–2009, the U.S. government engaged in __ fiscal
policy. (EXPANSIONARY)
The goal of this policy was to _____ aggregate demand. (INCREASE)
In which direction does the AD curve move if the government wants to engage in contractionary
fiscal policy? Drag the curve in the correct direction.
(In contractionary fiscal policy, the AD shifts to the left)
,Assume a country is producing below the full-employment output level and the government
does not want to wait for a long-run adjustment. Drag the appropriate curve to show what would
occur if the government implemented a successful expansionary fiscal policy to bring the
economy to the full-employment output level.
If an economy is experiencing an unemployment rate that is less than the natural rate, then
which of the following fiscal policies would you suggest to restore the economy to full
employment?
Which of the following policies represents an automatic stabilizer with respect to fiscal policy?
, As an elected official, you have been informed that real GDP is below its potential and that
action should be taken to encourage economic growth and bring the economy to its long-run
equilibrium. The marginal propensity to consume is 0.8, and the amount of new government
spending is $500 billion.
How to solve:
1 / (1 - 0.8) = 0.2
.2 = 5.0
By how much would the economy be stimulated?
How to solve:
500 * 5.0 = 2500.00
During the fall of 2007, the United States economy began a descent into deep recession. As a
result, the federal government and the Federal Reserve took action to stimulate economic
growth. Which of the following would have been an appropriate fiscal policy?
Chapter 16:
Which of the following are expansionary fiscal policies?
The impact of fiscal policy is limited by crowding-out. Which of the following events represent
crowding-out with an expansionary fiscal policy?
,During the periods 2001–2002 and 2007–2009, the U.S. government engaged in __ fiscal
policy. (EXPANSIONARY)
The goal of this policy was to _____ aggregate demand. (INCREASE)
In which direction does the AD curve move if the government wants to engage in contractionary
fiscal policy? Drag the curve in the correct direction.
(In contractionary fiscal policy, the AD shifts to the left)
,Assume a country is producing below the full-employment output level and the government
does not want to wait for a long-run adjustment. Drag the appropriate curve to show what would
occur if the government implemented a successful expansionary fiscal policy to bring the
economy to the full-employment output level.
If an economy is experiencing an unemployment rate that is less than the natural rate, then
which of the following fiscal policies would you suggest to restore the economy to full
employment?
Which of the following policies represents an automatic stabilizer with respect to fiscal policy?
, As an elected official, you have been informed that real GDP is below its potential and that
action should be taken to encourage economic growth and bring the economy to its long-run
equilibrium. The marginal propensity to consume is 0.8, and the amount of new government
spending is $500 billion.
How to solve:
1 / (1 - 0.8) = 0.2
.2 = 5.0
By how much would the economy be stimulated?
How to solve:
500 * 5.0 = 2500.00
During the fall of 2007, the United States economy began a descent into deep recession. As a
result, the federal government and the Federal Reserve took action to stimulate economic
growth. Which of the following would have been an appropriate fiscal policy?
