Question 1

The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.

Accepted Answer

A) True 
 B)False

Question 2

Built-in stability is synonymous with discretionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 3

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) None of the above
F) A) and D)

Question 4

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

Accepted Answer

A)   It decreases domestic interest rates,causing the dollar to appreciate and net exports to decrease.
B)   It decreases domestic interest rates,causing the dollar to depreciate and net exports to increase.
C)   It decreases domestic interest rates,causing the dollar to depreciate and net exports to decrease.
D)   It increases domestic interest rates,causing the dollar to appreciate and net exports to decrease.E) B) and D)
F) A) and B)

Question 5

An economy is experiencing a high rate of inflation.The government wants to reduce GDP by $36 billion to reduce inflationary pressure.The MPC is .75.By how much should the government raise taxes to achieve its objective?

Accepted Answer

A)   $6 billion
B)   $9 billion
C)   $12 billion
D)   $16 billionE) A) and C)
F) All of the above

Question 6

-Refer to the above diagram wherein T is tax revenues and G is government expenditures.All figures are in billions.The equilibrium level of GDP in this economy:

Accepted Answer

A)   is $400.
B)   is greater than $400.
C)   is less than $400.
D)   cannot be determined from the information given.E) B) and D)
F) B) and C)

Question 7

If the full-employment surplus as a percentage of GDP is zero in one year,and 2 percent of GDP the next year,it can be concluded that:

Accepted Answer

A)   fiscal policy is expansionary.
B)   fiscal policy is contractionary.
C)   the federal government is borrowing money.
D)   the federal government is lending money.E) B) and D)
F) A) and B)

Question 8

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Accepted Answer

A)   crowding-out lag.
B)   recognition lag.
C)   operational lag.
D)   administrative lag.E) None of the above
F) B) and C)

Question 9

Contractionary fiscal policy is so named because it:

Accepted Answer

A)   involves a contraction of the nation's money supply.
B)   necessarily reduces the size of government.
C)   is aimed at reducing aggregate demand and thus achieving price stability.
D)   is expressly designed to contract real GDP.E) A) and D)
F) A) and B)

Question 10

The largest proportion of the public debt is held by:

Accepted Answer

A)   the Canadian public (individuals,businesses,financial institutions,etc. ) .
B)   foreign individuals and institutions.
C)   our central banks.
D)   governmental agencies.E) All of the above
F) B) and D)

Question 11

(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.
-The "political business cycle" refers to the possibility that:

Accepted Answer

A)   incumbent politicians will be re-elected regardless of the state of the economy.
B)   politicians will manipulate the economy to enhance their chances of being re-elected.
C)   there is more inflation during Liberal administrations than during Progressive Conservative administrations.
D)   recessions coincide with election years.E) All of the above
F) C) and D)

Question 12

A decrease in government spending and taxes would be an example of fiscal policies that reinforce each other.

Accepted Answer

A) True 
 B)False

Question 13

Built-in stability means that:

Accepted Answer

A)   an annually balanced budget will automatically offset the pro-cyclical tendencies created by state and local finance and thereby stabilizes the economy.
B)   with given tax rates and expenditures policies a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline will result in a deficit or a lower budget surplus.
C)   Parliament will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity.
D)   government expenditures and tax receipts automatically balance over the business cycle,though they may be out of balance in any single year.E) All of the above
F) A) and B)

Question 14

In a certain year the aggregate demand at the existing price level consists of $100 billion of consumption,$40 billion of investment,$10 billion of net exports,and $20 billion of government purchases.Full-employment GDP is $200 billion.To obtain full employment under these conditions the government should:

Accepted Answer

A)   encourage personal saving by increasing the interest rate on government bonds.
B)   decrease government expenditures.
C)   reduce tax rates and increase government spending.
D)   discourage private investment by increasing corporate income taxes.E) A) and B)
F) B) and C)

Question 15

In an economy,the government wants to decrease aggregate demand by $24 billion at each price level to decrease real GDP and control demand-pull inflation.If the MPC is .75,then it could increase taxes by:

Accepted Answer

A)   $6 billion.
B)   $8 billion.
C)   $10 billion.
D)   $12 billion.E) A) and C)
F) A) and B)

Question 16

What percentage of the public debt is held by foreign individuals and institutions?

Accepted Answer

A)   22 percent
B)   2 percent
C)   70 percent
D)   90 percentE) B) and D)
F) B) and C)

Question 17

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

Accepted Answer

A)   affect neither the size of the multiplier nor the stability of the economy.
B)   increase the size of the multiplier and make the economy more stable.
C)   increase the size of the multiplier and make the economy less stable.
D)   reduce the size of the multiplier and make the economy more stable.E) B) and C)
F) A) and B)

Question 18

-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 C)
F) A) and D)

Question 19

The table below shows the full-employment budget deficit as a percentage of GDP over a five-year period. 
Refer to the above information.In which year was fiscal policy expansionary?

Accepted Answer

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

Question 20

-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:

Accepted Answer

A)   actual budget deficit exceeds the full-employment deficit.
B)   actual budget deficit is less than the full-employment deficit.
C)   full-employment deficit exceeds the cyclical deficit.
D)   cyclical deficit exceeds the full-employment deficit.E) None of the above
F) B) and D)

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

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

Correct Answer
verified

The largest proportion of the public debt is held by:

Correct Answer
verified

In an economy,the government wants to decrease aggregate demand by $24 billion at each price level to decrease real GDP and control demand-pull inflation.If the MPC is .75,then it could increase taxes by:

Correct Answer
verified

-Refer to the above diagram wherein T is tax revenues and G is government expenditures.All figures are in billions.The equilibrium level of GDP in this economy:

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 GDP is $400 billion while the actual GDP is $200 billion,the:

Correct Answer
verified

If the full-employment surplus as a percentage of GDP is zero in one year,and 2 percent of GDP the next year,it can be concluded that:

Correct Answer
verified

Built-in stability is synonymous with discretionary fiscal policy.

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

Built-in stability means that:

Correct Answer
verified

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

The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.

Correct Answer
verified

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Correct Answer
verified

What percentage of the public debt is held by foreign individuals and institutions?

Correct Answer
verified

An economy is experiencing a high rate of inflation.The government wants to reduce GDP by $36 billion to reduce inflationary pressure.The MPC is .75.By how much should the government raise taxes to achieve its objective?

Correct Answer
verified

A decrease in government spending and taxes would be an example of fiscal policies that reinforce each other.

Correct Answer
verified

Contractionary fiscal policy is so named because it:

Correct Answer
verified

The table below shows the full-employment budget deficit as a percentage of GDP over a five-year period. Refer to the above information.In which year was fiscal policy expansionary?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

Correct AnswerverifiedShow Answer

The largest proportion of the public debt is held by:

Correct AnswerverifiedShow Answer

In an economy,the government wants to decrease aggregate demand by $24 billion at each price level to decrease real GDP and control demand-pull inflation.If the MPC is .75,then it could increase taxes by:

Correct AnswerverifiedShow Answer

-Refer to the above diagram wherein T is tax revenues and G is government expenditures.All figures are in billions.The equilibrium level of GDP in this economy:

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:

Correct AnswerverifiedShow Answer

If the full-employment surplus as a percentage of GDP is zero in one year,and 2 percent of GDP the next year,it can be concluded that:

Correct AnswerverifiedShow Answer

Built-in stability is synonymous with discretionary fiscal policy.

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

Built-in stability means that:

Correct AnswerverifiedShow Answer

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

The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.

Correct AnswerverifiedShow Answer

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Correct AnswerverifiedShow Answer

What percentage of the public debt is held by foreign individuals and institutions?

Correct AnswerverifiedShow Answer

An economy is experiencing a high rate of inflation.The government wants to reduce GDP by $36 billion to reduce inflationary pressure.The MPC is .75.By how much should the government raise taxes to achieve its objective?

Correct AnswerverifiedShow Answer

A decrease in government spending and taxes would be an example of fiscal policies that reinforce each other.

Correct AnswerverifiedShow Answer

Contractionary fiscal policy is so named because it:

Correct AnswerverifiedShow Answer

The table below shows the full-employment budget deficit as a percentage of GDP over a five-year period. Refer to the above information.In which year was fiscal policy expansionary?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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