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.
1) Expansionary fiscal policy refers to measures taken by the government to stimulate economic growth and increase aggregate demand. It usually involves increasing government spending or reducing taxes. Therefore, option C, which is a cut in corporate income tax rates, represents expansionary fiscal policy.
2) The amount of time it takes to identify a national economic problem is known as the recognition time lag. This refers to the time it takes for policymakers and economists to recognize that an economic problem exists and needs to be addressed. Option A, the recognition time lag, is the correct answer.
3) Contractionary fiscal policy refers to measures taken by the government to slow down economic growth and reduce inflationary pressure. It usually involves reducing government spending or increasing taxes. Therefore, option C, which states that contractionary fiscal policy involves cutting taxes, is incorrect. The correct answer is B, which suggests that contractionary fiscal policy will generate lower price levels.
1) To determine which of the options represents expansionary fiscal policy, we need to understand the concept. Expansionary fiscal policy refers to measures taken by governments to stimulate economic growth during a period of economic slowdown or recession. This is typically achieved through increased government spending and/or reduced taxes, with the aim of boosting consumer spending and investment.
Based on this definition, we can analyze the options:
A. an increase in average individual income tax rates: This option does not represent expansionary fiscal policy because it involves increasing taxes, which would likely reduce consumer spending and potentially hinder economic growth.
B. an increase in marginal individual income tax rates: Similar to option A, this option also involves increasing taxes, making it inconsistent with expansionary fiscal policy.
C. a cut in corporate income tax rates: This option aligns with expansionary fiscal policy since it involves reducing taxes, specifically for corporations. Lower corporate tax rates can incentivize investment and potentially boost economic growth.
So, option C (a cut in corporate income tax rates) represents expansionary fiscal policy.
2) The amount of time it takes to identify a national economic problem can be categorized into different time lags. Let's analyze the options:
A. the recognition time lag: This option represents the time it takes for policymakers to recognize a national economic problem. When economic indicators signal a downturn, it takes time for policymakers to acknowledge the issue.
B. the effect time lag: This option represents the time it takes for the implemented policies to have an effect on the economy. After policymakers identify the problem, it takes time for their actions to influence the economy and produce results.
C. the action time lag: This option represents the time it takes for policymakers to take action once they have identified an economic problem. It involves the time it takes to formulate and implement the necessary policies.
Given the options, the correct answer is A, the recognition time lag, as it reflects the time taken to identify a national economic problem.
3) Contractionary fiscal policy aims to slow down economic growth to curb inflationary pressures or reduce excessive aggregate demand. Let's analyze the options:
A. generate greater real GDP: This option suggests that contractionary fiscal policy would lead to higher production and economic growth. However, this is not consistent with the objective of contractionary policy, which is to slow down economic growth.
B. generate lower price levels: This option aligns with the objective of contractionary fiscal policy. By reducing aggregate demand, it intends to lower price levels and control inflation.
C. involve cutting taxes: This option represents an expansionary fiscal policy action, not a contractionary one. Contractionary policies usually involve increasing taxes to reduce consumption and spending.
Therefore, the correct answer is B, generate lower price levels, as it reflects the intended outcome of contractionary fiscal policy.