42) Discretionary fiscal policy is a fiscal policy action, such as A) an interest rate cut, initiated by an act of Congress.
B) an increase in payments to the unemployed, initiated by the state of the economy.
C) a tax cut, initiated by an act of Congress.
D) a decrease in tax receipts, initiated by the state of the economy.
E) an increase in the quantity of money.


43) The magnitude of the government expenditure multiplier is the magnitude of the tax multiplier.
A) greater than
B) equal to
C) less than
D) not comparable to
E) greater than for expansionary policy and less than for contractionary policy

44) An increase in government expenditure can potential GDP and an increase in taxes can potential GDP.
A) increase; increase
B) increase; never change
C) decrease; decrease
D) never change; never change
E) increase; decrease

45) When the Fed increases the federal funds rate,
A) there is no effect on investment because investment depends on the real interest rate.
B) the real interest rate falls, and investment increases.
C) the real interest rate rises, and investment decreases.
D) the real interest rate is unaffected, but investment still decreases.
E) the real interest rate rises, and investment does not change.


46) The Fed raises the federal funds rate. Which of the following changes occurs most rapidly?
A) Exchange rate rises.
B) Consumption expenditure decreases.
C) Aggregate demand decreases.
D) Real GDP growth decreases.
E) Inflation rate decreases.


47) If the Fed increases the quantity of money and lowers the federal funds rate, real GDP and the price level .
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) increases; does not change


48) Raising the federal funds rate shifts the aggregate demand curve so that real GDP and the price level .
A) rightward; increases; rises
B) leftward; decreases; rises
C) rightward; increases; falls
D) leftward; decreases; falls
E) leftward; increases; rises