Question 1

Which are contractionary fiscal policies?

Accepted Answer

A)   increased taxation and increased government spending
B)   increased taxation and decreased government spending
C)   decreased taxation and no change in government spending
D)   no change in taxation and increased government spendingE) A) and B)
F) A) and C)

Question 2

It is more meaningful to measure the growth of the public debt relative to the GDP than to measure it in absolute terms.

Accepted Answer

A) True 
 B)False

Question 3

Assume that aggregate demand in the economy is excessive, causing an inflationary gap. Which of the following would be most in accord with appropriate government fiscal policy?

Accepted Answer

A)   an increase in federal income tax rates
B)   an increase in the size of income tax exemptions for each dependent
C)   passage of legislation providing for the construction of 8,000 new post office buildings
D)   an increase in soil conservation subsidies to farmersE) A) and C)
F) A) and D)

Question 4

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary the:

Accepted Answer

A)   smaller is the economy's MPS.
B)   larger is the economy's MPS.
C)   smaller is the economy's MPC.
D)   larger is the unemployment rate.E) C) and D)
F) None of the above

Question 5

Which of the following best describes the notion of a "political business cycle"?

Accepted Answer

A)   Politicians are more willing to cut taxes and increase government spending than they are to do the reverse.
B)   Fiscal policy will result in alternating budget deficits and surpluses.
C)   Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
D)   Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.E) None of the above
F) A) and B)

Question 6

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Accepted Answer

A)   increased government spending or increased taxation, or a combination of the two actions.
B)   increased government spending or decreased taxation, or a combination of the two actions.
C)   increased government spending or increased taxation, but not a combination of the two actions.
D)   decreased government spending or decreased taxation, or a combination of the two actions.E) A) and D)
F) C) and D)

Question 7

An increase in the public debt will:

Accepted Answer

A)   increase incentives to work and bear risk.
B)   probably increase the inequality in the distribution of income.
C)   decrease the Canadian debt held by citizens and institutions in foreign nations.
D)   decrease the potential for higher taxation in CanadaE) A) and B)
F) A) and C)

Question 8

The following budget information is for a hypothetical economy. All data are in billions of dollars.
 
-Refer to the above data. The budget deficit in year 3 is:

Accepted Answer

A)   $175 billion.
B)   $3050 billion.
C)   $100 billion.
D)   $295 billion.E) A) and B)
F) All of the above

Question 9

An expansionary fiscal policy in Canada might unintentionally cause demand-pull inflation if:

Accepted Answer

A)   the dollar unexpectedly appreciates while the expansionary policy is in place.
B)   the dollar unexpectedly depreciates while the expansionary policy is in place.
C)   the policy produces severe crowding out.
D)   our trading partners experience recession during the time of the fiscal policy action.E) A) and D)
F) A) and B)

Question 10

The real burden of an increase in the public debt:

Accepted Answer

A)   may be very small or conceivably zero when the economy is in the midst of a severe depression.
B)   will be smaller when full employment exists than it will when the economy has large quantities of idle resources.
C)   can be shifted to future generations if the debt is internally financed.
D)   can best be measured by the dollar increase in the size of the debt.E) All of the above
F) A) and D)

Question 11

Which of the following best describes the built-in stabilizers as they function in Canada?

Accepted Answer

A)   The size of the balanced-budget multiplier varies inversely with the level of GDP.
B)   Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises.
C)   Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP.
D)   Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.E) All of the above
F) C) and D)

Question 12

Discretionary fiscal policy will stabilize the economy most when:

Accepted Answer

A)   deficits are incurred during recessions and surpluses during inflations.
B)   the budget is balanced each year.
C)   deficits are incurred during inflations and surpluses during recessions.
D)   budget surpluses are continuously incurred.E) None of the above
F) All of the above

Question 13

-Refer to the above data. If a 10 percent proportional tax on income is imposed, the consumption schedule will now be:

Accepted Answer

A)   Column A
B)   Column B
C)   Column C
D)   Column DE) B) and D)
F) B) and C)

Question 14

-Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment and actual GDP are each $400 billion, government can balance its budget by:

Accepted Answer

A)   increasing T by $40 billion.
B)   reducing G by $20 billion.
C)   reducing T by $20 billion.
D)   increasing T by $10 billion and reducing G by $20 billion.E) B) and D)
F) None of the above

Question 15

With a regressive tax system, as the level of income increases in an economy, the average tax rate will:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain constant.
D)   either increase or decrease.E) B) and D)
F) None of the above

Question 16

A specific reduction in government spending will dampen demand-pull inflation by a greater amount, the:

Accepted Answer

A)   smaller is the economy's MPC.
B)   flatter is the economy's aggregate supply curve.
C)   smaller is the economy's MPS.
D)   less the economy's built-in stability.E) A) and C)
F) C) and D)

Question 17

The following budget information is for a hypothetical economy. All data are in billions of dollars.
 
-Refer to the above data. If year 1 is the first year of this nation's existence and year 5 is the present year, this nation's public debt is:

Accepted Answer

A)   $295 billion.
B)   $100 billion.
C)   $3540 billion.
D)   $230 billion.E) All of the above
F) A) and C)

Question 18

You are given the following information about aggregate demand at the existing price level for an economy: (1)  consumption = $400 billion; (2)  investment = $40 billion; (3)  government purchases = $90 billion; and (4)  net export = $25 billion.
If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with the goal of achieving full employment?

Accepted Answer

A)   increase government spending and taxes
B)   decrease government spending and taxes
C)   decrease government spending and increase taxes
D)   increase government spending and decrease taxesE) A) and D)
F) A) and C)

Question 19

The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Accepted Answer

A) True 
 B)False

Question 20

Expansionary fiscal policy is so named because it:

Accepted Answer

A)   involves an expansion of the nation's money supply.
B)   necessarily expands the size of government.
C)   is aimed at achieving greater price stability.
D)   is designed to expand real GDP.E) B) and D)
F) A) and B)

Exam 11: Fiscal Policy, Deficits, Surpluses, and Debt

Correct Answer
verified

It is more meaningful to measure the growth of the public debt relative to the GDP than to measure it in absolute terms.

Correct Answer
verified

An increase in the public debt will:

Correct Answer
verified

-Refer to the above data. If a 10 percent proportional tax on income is imposed, the consumption schedule will now be:

Correct Answer
verified

Expansionary fiscal policy is so named because it:

Correct Answer
verified

A specific reduction in government spending will dampen demand-pull inflation by a greater amount, the:

Correct Answer
verified

An expansionary fiscal policy in Canada might unintentionally cause demand-pull inflation if:

Correct Answer
verified

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary the:

Correct Answer
verified

Which of the following best describes the notion of a "political business cycle"?

Correct Answer
verified

Which of the following best describes the built-in stabilizers as they function in Canada?

Correct Answer
verified

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Correct Answer
verified

The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Correct Answer
verified

The following budget information is for a hypothetical economy. All data are in billions of dollars. -Refer to the above data. If year 1 is the first year of this nation's existence and year 5 is the present year, this nation's public debt is:

Correct Answer
verified

With a regressive tax system, as the level of income increases in an economy, the average tax rate will:

Correct Answer
verified

The following budget information is for a hypothetical economy. All data are in billions of dollars. -Refer to the above data. The budget deficit in year 3 is:

Correct Answer
verified

-Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment and actual GDP are each $400 billion, government can balance its budget by:

Correct Answer
verified

Assume that aggregate demand in the economy is excessive, causing an inflationary gap. Which of the following would be most in accord with appropriate government fiscal policy?

Correct Answer
verified

Discretionary fiscal policy will stabilize the economy most when:

Correct Answer
verified

The real burden of an increase in the public debt:

Correct Answer
verified

Which are contractionary fiscal policies?

Correct Answer
verified

Exam 11: Fiscal Policy, Deficits, Surpluses, and Debt

Correct AnswerverifiedShow Answer

It is more meaningful to measure the growth of the public debt relative to the GDP than to measure it in absolute terms.

Correct AnswerverifiedShow Answer

An increase in the public debt will:

Correct AnswerverifiedShow Answer

-Refer to the above data. If a 10 percent proportional tax on income is imposed, the consumption schedule will now be:

Correct AnswerverifiedShow Answer

Expansionary fiscal policy is so named because it:

Correct AnswerverifiedShow Answer

A specific reduction in government spending will dampen demand-pull inflation by a greater amount, the:

Correct AnswerverifiedShow Answer

An expansionary fiscal policy in Canada might unintentionally cause demand-pull inflation if:

Correct AnswerverifiedShow Answer

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary the:

Correct AnswerverifiedShow Answer

Which of the following best describes the notion of a "political business cycle"?

Correct AnswerverifiedShow Answer

Which of the following best describes the built-in stabilizers as they function in Canada?

Correct AnswerverifiedShow Answer

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Correct AnswerverifiedShow Answer

The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Correct AnswerverifiedShow Answer

The following budget information is for a hypothetical economy. All data are in billions of dollars. -Refer to the above data. If year 1 is the first year of this nation's existence and year 5 is the present year, this nation's public debt is:

Correct AnswerverifiedShow Answer

With a regressive tax system, as the level of income increases in an economy, the average tax rate will:

Correct AnswerverifiedShow Answer

The following budget information is for a hypothetical economy. All data are in billions of dollars. -Refer to the above data. The budget deficit in year 3 is:

Correct AnswerverifiedShow Answer

-Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment and actual GDP are each $400 billion, government can balance its budget by:

Correct AnswerverifiedShow Answer

Assume that aggregate demand in the economy is excessive, causing an inflationary gap. Which of the following would be most in accord with appropriate government fiscal policy?

Correct AnswerverifiedShow Answer

Discretionary fiscal policy will stabilize the economy most when:

Correct AnswerverifiedShow Answer

The real burden of an increase in the public debt:

Correct AnswerverifiedShow Answer

Which are contractionary fiscal policies?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified