Question 1

The full-employment budget measures what the Federal budget deficit or surplus would be at full employment output with existing tax and spending decisions.

Accepted Answer

A) True 
 B)False

Question 2

To understand the quantitative significance of the public debt relative to the economy, it should be:

Accepted Answer

A)  divided by the social security trust fund.
B)  multiplied by the size of the population.
C)  measured as a percentage of GDP.
D)  compared to the value of imports and exports.E) B) and C)
F) All of the above

Question 3

Which one of the following best describes the net export effect associated with an expansionary Canadian fiscal policy?

Accepted Answer

A)  domestic interest rate falls, foreign demand for dollars rises, dollar appreciates, and net exports increase.
B)  domestic interest rate falls, foreign demand for dollars rises, dollar appreciates, and net exports fall.
C)  domestic interest rate rises, foreign demand for dollars falls, dollar depreciates, and net exports increase.
D)  domestic interest rate rises, foreign demand for dollars increases, dollar appreciates, and net exports decline.E) B) and D)
F) B) and C)

Question 4

If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion at each price level by:

Accepted Answer

A)  reducing government expenditures by $125 billion.
B)  reducing government expenditures by $20 billion.
C)  increasing taxes by $50 billion.
D)  increasing taxes by $250 billion.E) B) and C)
F) None of the above

Question 5

An increase in taxes and a decrease in government spending would be characteristic of a contractionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 6

In 2011, the level of taxation (the average tax rate)  required to pay interest on the public debt was about:

Accepted Answer

A)  2 percent of GDP.
B)  12 percent of GDP.
C)  26 percent of GDP.
D)  57 percent of GDP.E) A) and B)
F) A) and C)

Question 7

Like households and businesses, the provincial and municipal governments increase their expenditure during good times and cut them during recession.As a result of such a practice:

Accepted Answer

A)  the economic recession would be eliminated while the inflationary situation is worsened.
B)  the economic recession and or inflationary situation is worsened.
C)  the economic recession and or inflationary situation is more manageable.
D)  the economic recession and or inflationary situation is corrected.E) B) and C)
F) None of the above

Question 8

A major advantage of the built-in or automatic stabilizers is that they:

Accepted Answer

A)  simultaneously stabilize the economy and reduce the absolute size of the public debt.
B)  automatically produce surpluses during recessions and deficits during inflations.
C)  require no discretionary budgetary policy.
D)  guarantee that the federal budget will be balanced over the course of the business cycle.E) B) and D)
F) B) and C)

Question 9

All else equal, a contractionary fiscal policy in Canada which reduces domestic interest rates tends to:

Accepted Answer

A)  increase Canadian imports.
B)  increase the international value of the dollar.
C)  reduce the foreign demand for Canadian dollars.
D)  aggravate an existing Canadian trade deficit.E) C) and D)
F) All of the above

Question 10

A decrease in government spending is one of the options that can be used to pursue a contractionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 11

A cyclically adjusted budget deficit is also called a:

Accepted Answer

A)  full- employment deficit.
B)  cyclical deficit.
C)  recession-caused deficit.
D)  built-in stabilizer.E) None of the above
F) All of the above

Question 12

A major reason that a public debt cannot bankrupt the Federal government is because:

Accepted Answer

A)  the public debt is mostly held by foreigners.
B)  the Federal government has the Social Security Trust Fund.
C)  the public debt can be easily refinanced.
D)  the Federal government can draw on its gold reserves.E) C) and D)
F) A) and D)

Question 13

Refer to the above graph.The crowding-out effect would be illustrated by a:

Accepted Answer

A)  shift from curve A to curve B leading to a decrease in investment.
B)  shift from curve B to curve A leading to a decrease in interest rates.
C)  movement from point 1 to point 2 on curve A leading to a decrease in investment.
D)  movement from point 2 to point 1 on curve A leading to a decrease in investment.E) All of the above
F) None of the above

Question 14

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)

Question 15

Refer to the above diagram.Automatic stability in this economy could be decreased by:

Accepted Answer

A)  shifting the government expenditure line upward but parallel to its current position.
B)  changing the tax system so that the tax line is shifted upward but parallel to its present position.
C)  changing the government expenditures line so that it has a negative slope.
D)  changing the tax system so that the tax line has a flatter slope.E) A) and C)
F) B) and C)

Question 16

If the full-employment GDP for the above economy is at L, the:

Accepted Answer

A)  actual budget will entail a deficit.
B)  cyclically adjusted budget will entail a deficit.
C)  actual budget will entail a surplus.
D)  cyclically adjusted budget will entail a surplus.E) A) and B)
F) B) and D)

Question 17

An effective expansionary fiscal policy will:

Accepted Answer

A)  not change the size of full-employment deficit.
B)  reduce a full-employment deficit.
C)  increase the full-employment deficit.
D)  always result in a balanced budget once full-employment is achieveE) B) and C)
F) B) and D)

Question 18

Automatic stabilizers will reduce tax revenues during recessions and increase tax revenues during periods of strong economic growth.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

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

Question 20

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) A) and B)
F) C) and D)

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

In 2011, the level of taxation (the average tax rate) required to pay interest on the public debt was about:

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Like households and businesses, the provincial and municipal governments increase their expenditure during good times and cut them during recession.As a result of such a practice:

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Which one of the following best describes the net export effect associated with an expansionary Canadian fiscal policy?

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Refer to the above diagram.Automatic stability in this economy could be decreased by:

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The full-employment budget measures what the Federal budget deficit or surplus would be at full employment output with existing tax and spending decisions.

Correct AnswerverifiedShow Answer

An increase in taxes and a decrease in government spending would be characteristic of a contractionary fiscal policy.

Correct AnswerverifiedShow Answer

A decrease in government spending is one of the options that can be used to pursue a contractionary fiscal policy.

Correct AnswerverifiedShow Answer

Automatic stabilizers will reduce tax revenues during recessions and increase tax revenues during periods of strong economic growth.

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An effective expansionary fiscal policy will:

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Refer to the above graph.The crowding-out effect would be illustrated by a:

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

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

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A cyclically adjusted budget deficit is also called a:

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A major advantage of the built-in or automatic stabilizers is that they:

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If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion at each price level by:

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

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If the full-employment GDP for the above economy is at L, the:

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To understand the quantitative significance of the public debt relative to the economy, it should be:

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All else equal, a contractionary fiscal policy in Canada which reduces domestic interest rates tends to:

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A major reason that a public debt cannot bankrupt the Federal government is because:

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