Question 1

In an economy,the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment.If the MPS is .4,then it could increase government spending by:

Accepted Answer

A)   $10 billion.
B)   $20 billion.
C)   $31.25 billion.
D)   $40.50 billion.E) A) and D)
F) None of the above

Question 2

If the MPC in an economy is .75,government could shift the aggregate demand curve leftward by $60 billion at each price level by:

Accepted Answer

A)   reducing government expenditures by $12 billion.
B)   reducing government expenditures by $60 billion.
C)   increasing taxes by $15 billion.
D)   increasing taxes by $20 billion.E) A) and D)
F) All of the above

Question 3

-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 GDP is $400 billion while the actual GDP is $200 billion,the full-employment or cyclically adjusted deficit is:

Accepted Answer

A)   $40 billion.
B)   zero.
C)   $60 billion.
D)   $20 billion.E) None of the above
F) A) and C)

Question 4

During the last decade,the gross federal public debt has:

Accepted Answer

A)   increased substantially.
B)   increased as a percentage of the GDP.
C)   increased slightly.
D)   decreased as a percentage of the GDP,but began to rise again in 2009 as a percentage of GDP.E) A) and D)
F) A) and C)

Question 5

Which is an important problem associated with the public debt?

Accepted Answer

A)   Payments of interest on the debt lead to greater income equality.
B)   Interest payments on the debt tend to improve economic incentives to work and produce more unemployment.
C)   Government borrowing to finance the debt may increase the level of private investment.
D)   Payment of interest on the debt held by foreigners transfers real resources abroad.E) B) and D)
F) A) and B)

Question 6

Discretionary fiscal policy refers to:

Accepted Answer

A)   any change in government spending or taxes which destabilizes the economy.
B)   the authority which Parliament has to change personal income tax rates.
C)   changes in taxes and government expenditures made by Parliament to stabilize the economy.
D)   the changes in taxes and transfers which occur as GDP changes.E) A) and D)
F) C) and D)

Question 7

If you are told that the government had an actual budget deficit of $50 billion,then you would:

Accepted Answer

A)   know that fiscal policy was expansionary.
B)   know that fiscal policy was contractionary.
C)   know that fiscal policy was producing a cyclical deficit.
D)   not be able to determine the direction of fiscal policy from the information given.E) None of the above
F) C) and D)

Question 8

As a percent of GDP,Canada's public debt is:

Accepted Answer

A)   the fourth highest among major industrial nations.
B)   one of the lowest among major industrial nations.
C)   in the high range of debts compared to major industrial nations.
D)   higher than that of the United States,but lower than that of Germany.E) A) and D)
F) A) and C)

Question 9

Which of the following represents the most expansionary fiscal policy?

Accepted Answer

A)   a $10 billion tax cut
B)   a $10 billion increase in government spending
C)   a $10 billion tax increase
D)   a $10 billion decrease in government spendingE) None of the above
F) All of the above

Question 10

If the cyclically adjusted budget deficit increases from $200 billion to $250 billion and GDP remains constant over the two years,:

Accepted Answer

A)   fiscal policy is expansionary.
B)   fiscal policy is contractionary.
C)   fiscal policy is neutral.
D)   the tax system is progressive.E) B) and D)
F) None of the above

Question 11

Fiscal policy is carried out primarily by:

Accepted Answer

A)   the federal government.
B)   provincial and local governments working together.
C)   provincial governments alone.
D)   local governments alone.E) C) and D)
F) A) and B)

Question 12

d1.The crowding-out effect of a large government deficit would be shown as a(n) : A)  shift of the investment demand curve from Id1 to Id2. B)  leftward shift of the investment demand curve. C)  increase in the interest rate from 4 percent to 6 percent and a decline in investment spending of $5 billion. D)  increase in the interest rate from 6 percent to 8 percent and a decline in investment spending of $40 billion." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram.Initially assume that the investment demand curve is Id1.The crowding-out effect of a large government deficit would be shown as a(n) :

Accepted Answer

A)   shift of the investment demand curve from Id1 to Id2.
B)   leftward shift of the investment demand curve.
C)   increase in the interest rate from 4 percent to 6 percent and a decline in investment spending of $5 billion.
D)   increase in the interest rate from 6 percent to 8 percent and a decline in investment spending of $40 billion.E) A) and B)
F) B) and C)

Question 13

4 B)  T3 C)  T2 D)  T1" class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram.Which tax system has the least built-in stability?

Accepted Answer

A)   T4
B)   T3
C)   T2
D)   T1E) B) and C)
F) A) and D)

Question 14

(1) The composite index of leading indicators turns downward for three consecutive months; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Parliament; (4) The tax cut is passed by Parliament; (5) Consumption spending begins to rise,aggregate demand increases,and the economy begins to recover.
-Refer to the above information.The recognition lag of fiscal policy is reflected in events:

Accepted Answer

A)   1 and 2.
B)   2 and 3.
C)   3 and 4.
D)   4 and 5.E) A) and B)
F) A) and C)

Question 15

If the government adopts a fiscal policy that is:

Accepted Answer

A)   expansionary,then net exports are likely to expand and reinforce the effects of the fiscal policy.
B)   contractionary,then net exports are likely to decline and partially offset the effects of the fiscal policy.
C)   contractionary,then net exports are likely to rise and reinforce the effects of the fiscal policy.
D)   expansionary,then net exports are likely to decline and partially offset the effects of the fiscal policy.E) B) and D)
F) A) and B)

Question 16

The "crowding-out effect" suggests that:

Accepted Answer

A)   the economy's productive capacity will reduce.
B)   imports are replacing domestic production.
C)   private investment is increasing at the expense of government spending.
D)   investment is increasing at the expense of consumption.E) A) and B)
F) A) and C)

Question 17

Refer to the diagram below wherein T is tax revenues and G is government expenditures.All figures are in billions.In this economy:

Accepted Answer

A)   tax revenues and government spending both vary directly with GDP.
B)   tax revenues vary directly with GDP,but government spending is independent of GDP.
C)   tax revenues and government spending both vary inversely with GDP.
D)   government spending varies directly with GDP,but tax revenues are independent of GDP.E) B) and D)
F) C) and D)

Question 18

An economist who advocates discretionary fiscal policy would recommend:

Accepted Answer

A)   tax cuts during recession and reductions in government spending during inflation.
B)   tax increases during recession and tax cuts during inflation.
C)   tax cuts during recession and tax increases during inflation.
D)   increases in government spending during recession and tax increases during inflation.E) None of the above
F) B) and D)

Question 19

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

Accepted Answer

A)   decrease.
B)   increase.
C)   remain the same.
D)   either decrease,increase,or remain the same.E) B) and C)
F) A) and C)

Question 20

The effectiveness of the built-in or automatic stabilizers is limited because:

Accepted Answer

A)   the stabilizers produce budget surpluses during recessions.
B)   transfer payments and subsidies increase during inflation and decrease during recessions.
C)   the offset which the stabilizers provide to a change in private spending is less than the change in private spending.
D)   the stabilizers raise the general price level regardless of the phase of the business cycle.E) C) and D)
F) B) and D)

Exam 13: Fiscal Policy, Deficits, Surpluses, and Debt

-Refer to the above diagram.Initially assume that the investment demand curve is I_d1.The crowding-out effect of a large government deficit would be shown as a(n) :

Correct Answer
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Which of the following represents the most expansionary fiscal policy?

Correct Answer
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Discretionary fiscal policy refers to:

Correct Answer
verified

In an economy,the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment.If the MPS is .4,then it could increase government spending by:

Correct Answer
verified

If the MPC in an economy is .75,government could shift the aggregate demand curve leftward by $60 billion at each price level by:

Correct Answer
verified

Which is an important problem associated with the public debt?

Correct Answer
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As a percent of GDP,Canada's public debt is:

Correct Answer
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Correct Answer
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If the cyclically adjusted budget deficit increases from $200 billion to $250 billion and GDP remains constant over the two years,:

Correct Answer
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If the government adopts a fiscal policy that is:

Correct Answer
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Refer to the diagram below wherein T is tax revenues and G is government expenditures.All figures are in billions.In this economy:

Correct Answer
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During the last decade,the gross federal public debt has:

Correct Answer
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-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 GDP is $400 billion while the actual GDP is $200 billion,the full-employment or cyclically adjusted deficit is:

Correct Answer
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The effectiveness of the built-in or automatic stabilizers is limited because:

Correct Answer
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-Refer to the above diagram.Which tax system has the least built-in stability?

Correct Answer
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An economist who advocates discretionary fiscal policy would recommend:

Correct Answer
verified

If you are told that the government had an actual budget deficit of $50 billion,then you would:

Correct Answer
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Fiscal policy is carried out primarily by:

Correct Answer
verified

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

Correct Answer
verified

The "crowding-out effect" suggests that:

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, Surpluses, and Debt

-Refer to the above diagram.Initially assume that the investment demand curve is Id1.The crowding-out effect of a large government deficit would be shown as a(n) :

Correct AnswerverifiedShow Answer

Which of the following represents the most expansionary fiscal policy?

Correct AnswerverifiedShow Answer

Discretionary fiscal policy refers to:

Correct AnswerverifiedShow Answer

In an economy,the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment.If the MPS is .4,then it could increase government spending by:

Correct AnswerverifiedShow Answer

If the MPC in an economy is .75,government could shift the aggregate demand curve leftward by $60 billion at each price level by:

Correct AnswerverifiedShow Answer

Which is an important problem associated with the public debt?

Correct AnswerverifiedShow Answer

As a percent of GDP,Canada's public debt is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the cyclically adjusted budget deficit increases from $200 billion to $250 billion and GDP remains constant over the two years,:

Correct AnswerverifiedShow Answer

If the government adopts a fiscal policy that is:

Correct AnswerverifiedShow Answer

Refer to the diagram below wherein T is tax revenues and G is government expenditures.All figures are in billions.In this economy:

Correct AnswerverifiedShow Answer

During the last decade,the gross federal public debt has:

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 GDP is $400 billion while the actual GDP is $200 billion,the full-employment or cyclically adjusted deficit is:

Correct AnswerverifiedShow Answer

The effectiveness of the built-in or automatic stabilizers is limited because:

Correct AnswerverifiedShow Answer

-Refer to the above diagram.Which tax system has the least built-in stability?

Correct AnswerverifiedShow Answer

An economist who advocates discretionary fiscal policy would recommend:

Correct AnswerverifiedShow Answer

If you are told that the government had an actual budget deficit of $50 billion,then you would:

Correct AnswerverifiedShow Answer

Fiscal policy is carried out primarily by:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The "crowding-out effect" suggests that:

Correct AnswerverifiedShow Answer

-Refer to the above diagram.Initially assume that the investment demand curve is I_d1.The crowding-out effect of a large government deficit would be shown as a(n) :

Correct Answer
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