Question 1

Due to automatic stabilizers, when income decreases, government transfer spending:

Accepted Answer

A)   increases and tax revenues decrease.
B)   decreases and tax revenues increase.
C)   and tax revenues decrease.
D)   and tax revenues increase.E) All of the above
F) A) and D)

Question 2

The crowding-out effect may be dampened if the investment-demand curve is shifting to the right.

Accepted Answer

A) True 
 B)False

Question 3

The additional taxes needed to pay the interest on the public debt reduce incentives to work, save, invest, and bear risks.

Accepted Answer

A) True 
 B)False

Question 4

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

Question 5

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n) :

Accepted Answer

A)   budget lag.
B)   recognition lag.
C)   operational lag.
D)   administrative lag.E) A) and D)
F) A) and C)

Question 6

-Refer to the above data. If a lump-sum tax (the same tax amount at each level of GDP)  of $40 is now imposed in this economy, the consumption schedule will be:

Accepted Answer

A)   Column A
B)   Column B
C)   Column C
D)   Column DE) B) and D)
F) B) and C)

Question 7

In a certain year the aggregate amount demanded 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 $120 billion. To obtain price level stability under these conditions the government should:

Accepted Answer

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

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

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) A) and B)

Question 11

A public debt which is owed to foreigners can be burdensome because:

Accepted Answer

A)   foreign interest rates are persistently higher than domestic interest rates.
B)   payment of interest reduces the volume of goods and services available for domestic uses.
C)   payment of interest will conflict with a nation's foreign aid programs.
D)   payment of interest will necessarily have a deflationary effect on prices in the paying nation.E) A) and B)
F) None of the above

Question 12

The crowding-out of investment may be avoided if a budget deficit is financed by issuing new money.

Accepted Answer

A) True 
 B)False

Question 13

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

Question 14

Currently, the general agreement about a proposed fiscal policy is that:

Accepted Answer

A)   it should be evaluated for its potential positive and negative impacts on long-run productivity growth.
B)   only the short -run impact of it on the economy should be evaluated.
C)   the politicians should not be worried about either the short-run nor long-run effects of a fiscal policy.
D)   it should only be used when the economy is experiencing an inflationary and not a recessionary gap.E) A) and C)
F) None of the above

Question 15

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) None of the above

Question 16

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 17

The crowding-out effect suggests that:

Accepted Answer

A)   increases in consumption are always at the expense of saving.
B)   increases in government spending will close a recessionary gap.
C)   increases in government spending may raise the interest rate and thereby reduce investment.
D)   high taxes reduce both consumption and saving.E) A) and B)
F) None of the above

Question 18

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) B) and C)
F) All of the above

Question 19

If the government wishes to increase the level of real GDP, it might reduce:

Accepted Answer

A)   taxes.
B)   transfer payments.
C)   the size of the budget deficit.
D)   its purchases of goods and services.E) All of the above
F) B) and C)

Question 20

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

Exam 11: Fiscal Policy, Deficits, Surpluses, and Debt

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n) :

Correct Answer
verified

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

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

-Refer to the above data. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is now imposed in this economy, the consumption schedule will be:

Correct Answer
verified

If the government wishes to increase the level of real GDP, it might reduce:

Correct Answer
verified

The crowding-out of investment may be avoided if a budget deficit is financed by issuing new money.

Correct Answer
verified

How is the public debt calculated?

Correct Answer
verified

A public debt which is owed to foreigners can be burdensome because:

Correct Answer
verified

Due to automatic stabilizers, when income decreases, government transfer spending:

Correct Answer
verified

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

Correct Answer
verified

Currently, the general agreement about a proposed fiscal policy is that:

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

The additional taxes needed to pay the interest on the public debt reduce incentives to work, save, invest, and bear risks.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The crowding-out effect suggests that:

Correct Answer
verified

The crowding-out effect may be dampened if the investment-demand curve is shifting to the right.

Correct Answer
verified

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

Correct Answer
verified

Exam 11: Fiscal Policy, Deficits, Surpluses, and Debt

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n) :

Correct AnswerverifiedShow Answer

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

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

-Refer to the above data. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is now imposed in this economy, the consumption schedule will be:

Correct AnswerverifiedShow Answer

If the government wishes to increase the level of real GDP, it might reduce:

Correct AnswerverifiedShow Answer

The crowding-out of investment may be avoided if a budget deficit is financed by issuing new money.

Correct AnswerverifiedShow Answer

How is the public debt calculated?

Correct AnswerverifiedShow Answer

A public debt which is owed to foreigners can be burdensome because:

Correct AnswerverifiedShow Answer

Due to automatic stabilizers, when income decreases, government transfer spending:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Currently, the general agreement about a proposed fiscal policy is that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The additional taxes needed to pay the interest on the public debt reduce incentives to work, save, invest, and bear risks.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The crowding-out effect suggests that:

Correct AnswerverifiedShow Answer

The crowding-out effect may be dampened if the investment-demand curve is shifting to the right.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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