Question Details

Rational consumers realize that a higher deficit now means 


1. "The slack exists, of course, because people continue to save even when the private sector demand for loans ebbs away. And they tend to save more, not less, in scary times." The phenomenon referred to in the second sentence acts as 
a) a destabilizer b) an automatic stabilizer 
c) a consumption booster d) a crowding out mechanism 
2. "A second reason for questioning the employment-generating abilities of the deficit involves how consumers respond to an increase in government borrowing. Rational consumers realize that a higher deficit now means higher taxes in the future. If people ...." Complete this clipping. 
a) react by buying imports, aggregate demand and thus employment falls 
b) become discouraged workers because of future higher taxes, employment falls 
c) consume more now to avoid the future higher taxes, aggregate demand and thus employment falls 
d) save more now to be able to pay the future higher taxes, aggregate demand and thus employment falls 
3. "This is the "crowding out" theory: Increased government borrowing crowds household and business investment out of limited savings, driving up _______, but not raising total demand." Fill in the blank. 
a) taxes b) inflation c) interest rates d) employment 
4. Suppose the economy is in recession and the government increases its spending by $10 billion but will not allow a deficit so at the same time it increases taxes by $10 billion. As a result of this the level of income 24 
a) rises b) falls c) is unchanged d) changes in an unpredictable direction 
5. Which of the following policies would a Keynesian expect to produce the largest increase in income? 
a) a tax cut of $200 b) an increase in transfer payments of $200 
c) an increase in government spending of $200 
d) a "balanced budget" increase in government spending of $200.



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