1. Under what scenario could fiscal policy make a recession even worse?
a. If tax cuts are not evenly distributed across income groups.
b. If there is no crowding out of private spending
c. If deficit financed fiscal policy increases the national debt to the point it scares investors away and decreases spender confidence
d. If the multiplier is bigger than 1
2) When aggregate demand decreases, the Fed will want to use its policy tools to
Select one :
a. keep aggregate demand lower until wages catch up.
b. quickly bring aggregate demand back to its original position.
c. shift aggregate supply to left to balance with lower demand
d. push aggregate demand higher than it was originally to make up for lost growth potential.
Fiscal Vs. Monetary Policy:
Fiscal policy and monetary policy are terms used in economics. Fiscal policy refers to spending by the government to stimulate or contract the economy. Examples include taxes and wars. Monetary policy refers to spending by the Federal Reserve related to expanding and contracting the economy to counter economic cycles. Examples include changes to interest rates and reserve requirements.
Answer and Explanation:
1. The answer is: c. If deficit financed fiscal policy increases the national debt to the point it scares investors away and decreases spender...
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fromChapter 14 / Lesson 3
Fiscal policy is a mechanism used by the U.S government to control the economy by raising taxes or choosing how to spend money on investments. Learn more about the meaning, usage and criticisms of U.S fiscal policy.