A Recessionary Gap Can Be Closed With

Question: Which of the following represents the largest source of tax revenue for the U.S. federal

government?

Answer: personal income taxes

Question: Discretionary fiscal policy involves:

Answer: using government spending or tax policy to affect aggregate demand.

Question: Discretionary fiscal policy refers to:

Answer: changes in government spending or taxes to close a recessionary or inflationary gap.

Question: Which of the following is a government transfer?

Answer: Social Security payments to retired workers

Question: Which of the following does NOT come under the topic of fiscal policy?

Answer: changes in the money supply

Question: Government payments to households for which no good or service is provided in return are

called:

Answer: transfer payments.

Question: Medicaid, Medicare and Social Security are examples of:

Answer: transfer payments.

Question: A change in taxes or a change in government transfers affects consumption through a change in:

Answer: disposable income.

Question: Suppose the economy is experiencing a recessionary gap. To move equilibrium aggregate output

closer to the level of potential output, the best fiscal policy option is to:

Answer: decrease taxes.

Question: The current level of real GDP lies below potential GDP. An appropriate fiscal policy would be

to _____, which will shift the _____ curve to the _____.

Answer: increase government purchases; AD; right.