a. The problem of time lags in enacting and applying fiscal policy is
O there are offsetting circumstances that can occur in the private market.
O in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed.
O discretionary fiscal policy only works in certain economic situations.
O for a policy to have its full effect on the economy, it must be enacted in three months; however, it usually takes longer.
b. A political business cycle is the idea that
O the economy usually expands during election years because there is extra spending.
O politicians are more interested in adding spending programs than in getting elected.
O the economy usually contracts during election years because there is intense scrutiny on spending.
O politicians are more interested in reelection than in stabilizing the economy.
c. Expectations of a near-term policy reversal weaken fiscal policy because
O people tend to make decisions based on pre-tax income.
O interest rates will usually rise, offsetting any change in fiscal policy.
O tax cuts are combined with spending increases so there is no real effect.
O consumers may hesitate to increase their spending because they believe that tax rates will rise again.
d. The crowding-out effect is:
O a reduction in investment spending caused by a decrease in interest rates arising from an increase in government spending.
O a reduction in investment spending caused by an increase in interest rates arising from an increase in government spending.
O an increase in investment spending caused by an increase in interest rates arising from an increase in government spending.
