1)Which of the following represent expansionary fiscal policy?
A. an increase in average individual income tax rates
B. an increase in marginal individual income tax rates
C. a cut in corporate income tax rates
2)The amount of time that it takes to identify a national economic problem is
A. the recognition time lag.
B. the effect time lag.
C. the action time lag.
3)Contractionary fiscal policy usually will
A. generate greater real GDP.
B. generate lower price levels.
C. involve cutting taxes.
Ieme
1) To determine which option represents expansionary fiscal policy, we need to understand the concept. Expansionary fiscal policy refers to government actions aimed at increasing aggregate demand and stimulating economic growth. This can be achieved through increased government spending or tax cuts.
A. An increase in average individual income tax rates does not represent expansionary fiscal policy because it would reduce disposable income and potentially decrease aggregate demand.
B. An increase in marginal individual income tax rates also does not represent expansionary fiscal policy because it would reduce the incentive to work and invest, thus potentially decreasing aggregate demand.
C. On the other hand, a cut in corporate income tax rates represents expansionary fiscal policy. It increases the after-tax profit of businesses, encouraging them to invest and expand, which in turn can stimulate economic growth and increase aggregate demand.
Therefore, option C, a cut in corporate income tax rates, represents expansionary fiscal policy.
2) The question asks about the time it takes to identify a national economic problem. The correct answer is:
A. The recognition time lag.
The recognition time lag refers to the delay it takes for policymakers to recognize and acknowledge a national economic problem. This lag can occur due to various factors, such as data collection and analysis, gathering consensus among policymakers, and understanding the magnitude and implications of the problem.
B. The effect time lag refers to the delay between implementing policy measures and observing their impact on the economy.
C. The action time lag refers to the delay between recognizing a problem and implementing policy measures to address it.
3) Contractionary fiscal policy refers to government actions aimed at reducing aggregate demand and controlling inflationary pressures in the economy. This can be achieved through reduced government spending or tax increases.
A. Contractionary fiscal policy is not intended to generate greater real GDP. Its purpose is to slow down economic growth to prevent overheating and inflation.
B. While contractionary fiscal policy may help to lower price levels in the economy, this is not its main objective. Price levels are more directly influenced by monetary policy and other market forces.
C. Contrary to the third option, contractionary fiscal policy usually involves cutting government spending or raising taxes, rather than cutting taxes.
Therefore, the answer is C. Contradicting the statement, contractionary fiscal policy typically involves cutting taxes.