Question 1

Which of the following is the best example of public investment?

Accepted Answer

A)  salaries of members of Parliament
B)  government expenditures on paper clips
C)  construction of highways
D)  funding of regulatory agenciesE) A) and C)
F) A) and D)

Question 2

Other things equal, the stock of capital inherited by future generations is likely to be smaller when government spending:

Accepted Answer

A)  increases during a period of recession, rather than prosperity.
B)  is primarily for capital-type goods.
C)  is financed by borrowing.
D)  is financed by taxation.E) A) and C)
F) A) and B)

Question 3

Refer to the data below.If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: The following budget information is for a hypothetical economy.All data are in billions of dollars.

Accepted Answer

A)  7.5 percent.
B)  1.39 percent.
C)  2.5 percent.
D)  3.9 percent.E) B) and C)
F) B) and D)

Question 4

The cyclically adjusted deficit is the difference between annual government expenditures and tax revenues that would have occurred if the economy was:

Accepted Answer

A)  in a recession.
B)  at full employment.
C)  at the peak of a business cycle.
D)  at the trough of the business cycle.E) None of the above
F) A) and C)

Question 5

International flows of financial capital in response to interest rate changes in Canada:

Accepted Answer

A)  weaken domestic fiscal policy through an offsetting net export effect.
B)  strengthen domestic fiscal policy through a supporting net export effect.
C)  strengthen domestic fiscal policy through an offsetting net export effect.
D)  do none of the above.E) A) and B)
F) All of the above

Question 6

If the MPC in the economy is .75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

Accepted Answer

A) True 
 B)False

Question 7

The payment of interest on the public debt probably decreases income inequality.

Accepted Answer

A) True 
 B)False

Question 8

If the economy has a cyclically adjusted budget surplus, this means that:

Accepted Answer

A)  the public sector is exerting an expansionary impact upon the economy.
B)  tax revenues would exceed government expenditures if full employment were achieved.
C)  the actual budget is necessarily also in surplus.
D)  the economy is actually operating at full employment.E) B) and D)
F) B) and C)

Question 9

In Year 1, the actual budget deficit was $200 billion and the cyclically adjusted deficit was $150 billion.In Year 2, the actual budget deficit was $225 billion and the cyclically adjusted deficit was $175 billion.It can be concluded that fiscal policy from Year 1 to Year 2 was:

Accepted Answer

A)  proportional.
B)  inflationary.
C)  contractionary.
D)  expansionaryE) None of the above
F) A) and D)

Question 10

Which is regarded as an automatic stabilizer in the economy?

Accepted Answer

A)  interest rates
B)  exchange rates
C)  the inflation rate
D)  the progressive income taxE) A) and B)
F) A) and C)

Question 11

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

Accepted Answer

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

Question 12

Refer to the above data.The 10 percent proportional tax on income would:

Accepted Answer

A)  reduce the MPC from .6 to .54.
B)  not affect the size of the MPC.
C)  reduce the MPC from .6 to .5.
D)  increase the MPC from .6 to .64.E) C) and D)
F) All of the above

Question 13

A cyclical surplus (movement from a deficit to a surplus)  is a by-product of what stage of the business cycle?

Accepted Answer

A)  Recession
B)  Trough
C)  Expansion
D)  PeakE) B) and C)
F) A) and B)

Question 14

An expansionary fiscal policy is shown as a:

Accepted Answer

A)  rightward shift in the economy's aggregate demand curve.
B)  movement along an existing aggregate demand curve.
C)  leftward shift in the economy's aggregate supply curve.
D)  leftward shift in the economy's aggregate demand curve.E) A) and C)
F) B) and C)

Question 15

Critics contend that the crowding-out effect will be minimal when the economy is in a recession.

Accepted Answer

A) True 
 B)False

Question 16

If a deficit is financed by issuing new money, the:

Accepted Answer

A)  government is using its accumulated surplus to issue the new money.
B)  government will be competing with private borrowers for funds.
C)  increased demand for funds will drive up the interest rate.
D)  crowding-out of investment can probably be avoided.E) A) and B)
F) C) and D)

Question 17

Refer to the above diagram wherein T is tax revenues and G is government expenditures.All figures are in billions.The tax system of this economy is such that:

Accepted Answer

A)  it is regressive.
B)  it is progressive.
C)  tax revenues equal 50 percent of GDP.
D)  it tends to destabilize the economy.E) A) and D)
F) C) and D)

Question 18

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) None of the above

Question 19

The degree of built-in stability in the above economy could be increased by:

Accepted Answer

A)  reducing government purchases so that the purchases line shifts downward but parallel to its present position.
B)  changing the tax system so that the tax line is shifted downward but parallel to its present position.
C)  changing the tax system so that the tax line has a greater slope.
D)  altering the government expenditures line so that it has a positive slope.E) B) and C)
F) A) and B)

Question 20

Lines A and B in the above graph represent:

Accepted Answer

A)  the crowding-out effect.
B)  the interest-rate effect.
C)  investment demand curves.
D)  money demand curves.E) A) and B)
F) All of the above

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

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

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Refer to the data below.If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: The following budget information is for a hypothetical economy.All data are in billions of dollars.

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Refer to the above data.The 10 percent proportional tax on income would:

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Which is regarded as an automatic stabilizer in the economy?

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If a deficit is financed by issuing new money, the:

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Critics contend that the crowding-out effect will be minimal when the economy is in a recession.

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If the economy has a cyclically adjusted budget surplus, this means that:

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Refer to the above diagram wherein T is tax revenues and G is government expenditures.All figures are in billions.The tax system of this economy is such that:

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Lines A and B in the above graph represent:

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In Year 1, the actual budget deficit was $200 billion and the cyclically adjusted deficit was $150 billion.In Year 2, the actual budget deficit was $225 billion and the cyclically adjusted deficit was $175 billion.It can be concluded that fiscal policy from Year 1 to Year 2 was:

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International flows of financial capital in response to interest rate changes in Canada:

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An expansionary fiscal policy is shown as a:

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The degree of built-in stability in the above economy could be increased by:

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A cyclical surplus (movement from a deficit to a surplus) is a by-product of what stage of the business cycle?

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

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Which of the following is the best example of public investment?

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The payment of interest on the public debt probably decreases income inequality.

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If the MPC in the economy is .75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

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The cyclically adjusted deficit is the difference between annual government expenditures and tax revenues that would have occurred if the economy was:

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Other things equal, the stock of capital inherited by future generations is likely to be smaller when government spending:

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