What is the likely impact of fiscal policy on the future course of the economy in the scenario provided?
Which of the following best describes a disadvantage of using fiscal policy as a short-run economic tool?
What does the economist's statement about fiscal deficits and tax cuts reflect?
In the scenario provided, what is the effect of Country A's large fiscal deficit on private sector investment?
Crowding out effect
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Which of the following is a potential drawback of using income tax cuts to stimulate GDP growth during a recession?
Consumers may decide to increase savings.
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Why might a country with an independent central bank choose an expansionary monetary policy over a discretionary fiscal policy during a recession?
Monetary policy can be implemented more rapidly.
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What effect can an extended period of GDP growth have on a country's budget balance?
It will change a substantial surplus into a slight deficit.
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Which of the following is most likely to be considered a type of direct tax?
Property taxes on real estate
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What is the main limitation of fiscal policy in stabilizing aggregate demand?
The government's inability to borrow during recessions due to investor preference for corporate debt.
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How does monetary policy differ from fiscal policy?
Maintain price stability.
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Which advantage of using a specific fiscal policy tool is highlighted in the text?
Capital spending programs are one of the fastest ways to provide fiscal stimulus.
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What is an advantage of automatic stabilizers over discretionary fiscal policy?
Have a greater impact on GDP per unit of fiscal expenditure.
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