Which of the Following Statements About Fiscal Policy Is the Best

question 31

Multiple Choice

Which of the following statements about fiscal policy is the best description of "fine tuning"?

• A)The government increases its spending to reduce an inflationary gap.
• B)The government cuts taxes to remove a large and persistent recessionary gap.
• C)The government continuously alters its spending and taxing plans to hold real GDP at potential.
• D)The government decreases tax rates to decrease an inflationary gap.
• E)The government uses automatic stabilizers to reduce any output gaps.

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Definitions:

Basis Point

A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument, equal to 1/100th of 1%.

Bond Prices

The cost or value of a bond, which can fluctuate based on interest rates, credit quality of the issuer, and other factors.

Yields

Yields refer to the earnings generated and realized on an investment over a particular period, expressed as a percentage based on the investment’s cost, its current market value, or its face value.

Debentures

A type of debt instrument not secured by physical assets or collateral but based on the creditworthiness and reputation of the issuer.