1. Which one of the following will not offset fiscal policy?
a. The multiplier effect
b. Government spending financed by increased taxes
c. Government spending financed by borrowing(dificit spending)
d. Automatic stabilizers
2. Which one the following may well result from increased government borrowing resulting from deicit spending?
a. Increased purchases of consumer durable goods
b. Increased business investment
c. Higher interest rates
d. all of the above
3. Which of the following can correctly help to explain why US government budget deficits can be directly related to US trade deficits?
a. Higher US unterest rates induced by government budget deficits discourage foreign residents from purchasing US government securities, and as a consequence foreign residents purchase more US exports.
b. Higher US interest rates introduced by government budget deifcits encourage foreign residents purchase US government securities, and as a consequence foreign residents purchase fewer US foreign.
c. Higher US import spending increases the portion of domestic goods and services available for the government to purchase, which contributs to the occurrence of government budget deficits
d. Higher US import spending reduces the portion of income available for the government to tax, which contributs to the occurrence of government budget deficits.
4. Suppose that the govenment initially had a balanced budget but then experiences a budget deficit. If the results are a rise in the equilibium price level but no change in equilibrium real GDP, then the economy was initially in:
a. a long-run equilibrium situation and has remained in this situation.
b. recessionary-gap situation and has now attained a long-run equilibrium
c. an inflationary-gap situation and has now attained a long-run equilibrium
d. a long-run equilibrium situation but now operates with a recessionary gap.