1. According to the Laffer curve, increases in the tax rate will lead to a(n)
- steady increase in tax revenues.
- steady decrease in tax revenues.
- initial increase in tax revenues and then a decrease in tax revenues.
- initial decrease in tax revenues and then an increase in tax revenues.
2. Which of the following are lags with which fiscal policy makers must cope?
- Effect time lags
- All of the above
- Recognition time lags
- Action time lags
3. Once either expansionary or contractionary fiscal policy has been undertaken
- aggregate demand will respond quickly in the short run but the economy will not improve in the long run.
- aggregate demand will respond quickly and the problems in the economy will be corrected.
- a time lag exists between implementation and the results of the policy.
- taxes will need to be adjusted because of the recognition time lag.
4. When real gross domestic product (GDP) falls, which of the following will automatically occur?
- A decrease in income tax revenues
- A decrease in all tax rates
- A decrease in unemployment compensation expenditures
- An increase in income tax revenues
5. Provisions that cause changes in government spending and taxes that do not require action of the President or Congress are called
- automatic stabilizers.
- private stabilization effects.
- discretionary fiscal policy.
- discretionary stabilizers.