Question 1

How is the public debt calculated?

Accepted Answer

A)  by adding up consumption, investment, government purchases, and net exports and then cumulating the annual totals over the years of the nation
B)  by subtracting consumption and investment from government spending each year and then cumulating the annual totals over the years of the nation
C)  by subtracting current government spending from current government tax revenues
D)  by adding up the difference between annual government tax revenues and annual government spending and cumulating the differences over the years of the nationE) All of the above
F) B) and D)

Question 2

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 B)
F) A) and C)

Question 3

The actual budget deficit of an economy was about $30 billion in 2013.On the basis of this information, it:

Accepted Answer

A)  can be concluded that the economy faced severe inflation in 2013.
B)  cannot be determined whether the fiscal policy implemented by the government in 2013 was expansionary or contractionary.
C)  can be concluded that the fiscal policy implemented by the government in 2013 was contractionary.
D)  can be concluded that the fiscal policy implemented by the government in 2013 was expansionary.E) B) and C)
F) All of the above

Question 4

If the full-employment deficit as a percentage of GDP is zero in one year, and 1 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) C) and D)
F) A) and C)

Question 5

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

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

Built-in stability refers to the fact that net tax revenues vary inversely with the level of GDP.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

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

Accepted Answer

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

Question 11

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) B) and C)

Question 12

The "cyclically adjusted budget" refers to:

Accepted Answer

A)  the inflationary impact which the automatic stabilizers have in a full-employment economy.
B)  that portion of a full-employment GDP which is not consumed in the year it is produced.
C)  the size of the federal government's budgetary surplus or deficit when the economy is operating at full employment.
D)  the number of workers who are underemployed when the level of unemployment is 7 to 8 percent.E) B) and C)
F) A) and D)

Question 13

Within the aggregate demand and aggregate supply framework, fiscal policy that emphasizes activist government policies to stabilize the economy would view cutting personal income taxes as primarily a shift:

Accepted Answer

A)  right in the aggregate demand curve.
B)  left in the aggregate demand curve.
C)  right in the aggregate supply curve.
D)  left in the aggregate supply curve.E) C) and D)
F) None of the above

Question 14

Which of the following represents the most contractionary fiscal policy?

Accepted Answer

A)  a $30 billion tax cut
B)  a $30 billion increase in government spending
C)  a $30 billion tax increase
D)  a $30 billion decrease in government spendingE) A) and C)
F) B) and D)

Question 15

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 C)
F) None of the above

Question 16

Which set of fiscal policies would tend to offset each other?

Accepted Answer

A)  a decrease in government spending and taxes
B)  a decrease in government spending and no change in taxes
C)  an increase in government spending and a decrease in taxes
D)  a decrease in government spending and an increase in taxesE) A) and B)
F) A) and C)

Question 17

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

Question 18

Countercyclical discretionary fiscal policy calls for:

Accepted Answer

A)  surpluses during recessions and deficits during periods of demand-pull inflation.
B)  deficits during recessions and surpluses during periods of demand-pull inflation.
C)  surpluses during both recessions and periods of demand-pull inflation.
D)  deficits during both recessions and periods of demand-pull inflation.E) All of the above
F) None of the above

Question 19

A contractionary fiscal policy is shown as a:

Accepted Answer

A)  rightward shift in the economy's aggregate demand curve.
B)  rightward shift in the economy's aggregate supply curve.
C)  movement along an existing aggregate demand curve.
D)  leftward shift in the economy's aggregate demand curve.E) None of the above
F) A) and B)

Question 20

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 B)
F) All of the above

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

Which is an important problem associated with the public debt?

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

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How is the public debt calculated?

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The "cyclically adjusted budget" refers to:

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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:

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Built-in stability refers to the fact that net tax revenues vary inversely with the level of GDP.

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A contractionary fiscal policy is shown as a:

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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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An increase in the public debt will:

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Which of the following represents the most contractionary fiscal policy?

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Discretionary fiscal policy refers to:

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

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Countercyclical discretionary fiscal policy calls for:

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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?

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The real burden of an increase in the public debt:

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

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If the full-employment deficit as a percentage of GDP is zero in one year, and 1 percent of GDP the next year, it can be concluded that:

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Which set of fiscal policies would tend to offset each other?

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Within the aggregate demand and aggregate supply framework, fiscal policy that emphasizes activist government policies to stabilize the economy would view cutting personal income taxes as primarily a shift:

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The actual budget deficit of an economy was about $30 billion in 2013.On the basis of this information, it:

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