Which of the Following Would Be Considered an Active Fiscal

question 210

Multiple Choice

Which of the following would be considered an active fiscal policy?

• A)The Fed increases the money supply.
• B)Tax incentives are offered to encourage the purchase of fuel efficient cars.
• C)Spending on the war in Afghanistan is increased to promote homeland security.
• D)A tax cut is designed to stimulate spending passed during a recession.

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Definitions:

Depression

A severe and prolonged downturn in economic activity, characterized by significant declines in GDP, high unemployment, and deflation.

Money Demand

The total amount of money that households and businesses want to hold at any given time, depending on interest rates, income levels, and economic activity.

Price Level

An index that measures the average of prices of goods and services in an economy, often used to evaluate inflation or deflation.

Money Demand Curve

A graphical representation showing the relationship between the quantity of money people want to hold and the interest rate, under the assumption all other factors remain constant.