Question 1

The higher domestic interest rate resulting from an expansionary fiscal policy in Canada will tend to:

Accepted Answer

A) increase domestic investment spending. 
B) increase Canadian exports. 
C) increase domestic consumption spending. 
D) decrease Canadian exports. 
A) increase domestic investment spending. 
B) increase Canadian exports. 
C) increase domestic consumption spending. 
D) decrease Canadian exports.

Question 2

Increased government spending for investments such as highways or harbours financed by increasing the public debt would most likely:

Accepted Answer

A) crowd out future public investment. 
B) reduce the economy's future productive capacity. 
C) increase the amount of public capital stock in the future. 
D) increase the amount of private capital stock in the future. 
A) crowd out future public investment. 
B) reduce the economy's future productive capacity. 
C) increase the amount of public capital stock in the future. 
D) increase the amount of private capital stock in the future.

Question 3

The crowding-out effect of borrowing to finance the public debt:

Accepted Answer

A) decreases current spending for private investment. 
B) increases the privately owned stock of real capital. 
C) decreases the economic burden on future generations. 
D) increases incentives to work and save. 
A) decreases current spending for private investment. 
B) increases the privately owned stock of real capital. 
C) decreases the economic burden on future generations. 
D) increases incentives to work and save.

Question 4

One of the timing problems with fiscal policy is an "operational lag" that occurs between the:

Accepted Answer

A) beginning of a recession and the time that it is recognized that the event is occurring. 
B) time the need for fiscal action is recognized and the time that action is actually taken. 
C) time that fiscal action is taken and the time that action has an impact on output, employment, and the price level. 
D) time that fiscal action has an impact on output, employment, and the price level and the time by which it can be determined if the policy is effective. 
A) beginning of a recession and the time that it is recognized that the event is occurring. 
B) time the need for fiscal action is recognized and the time that action is actually taken. 
C) time that fiscal action is taken and the time that action has an impact on output, employment, and the price level. 
D) time that fiscal action has an impact on output, employment, and the price level and the time by which it can be determined if the policy is effective.

Question 5

The most likely way the public debt burdens future generations is by:

Accepted Answer

A) reducing the current level of investment. 
B) causing future unemployment. 
C) causing a slowly falling price level. 
D) reducing real interest rates. 
A) reducing the current level of investment. 
B) causing future unemployment. 
C) causing a slowly falling price level. 
D) reducing real interest rates.

Question 6

A tax reduction of a specific amount will be more expansionary, the:

Accepted Answer

A) smaller is the economy's MPC. 
B) larger is the economy's MPC. 
C) smaller is the economy's multiplier. 
D) less the economy's built-in stability. 
A) smaller is the economy's MPC. 
B) larger is the economy's MPC. 
C) smaller is the economy's multiplier. 
D) less the economy's built-in stability.

Question 7

Which of the following is an example of an automatic stabilizer? As real GDP decreases, income tax revenues:

Accepted Answer

A) increase and transfer payments decrease. 
B) decrease and transfer payments increase. 
C) and transfer payments decrease. 
D) and transfer payments increase. 
A) increase and transfer payments decrease. 
B) decrease and transfer payments increase. 
C) and transfer payments decrease. 
D) and transfer payments increase.

Question 8

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. 
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.

Question 9

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. 
A) $295 billion. 
B) $100 billion. 
C) $3540 billion. 
D) $230 billion.

Question 10

In an economy, the government wants to increase aggregate demand by $60 billion at each price level to increase real GDP and reduce unemployment.If the MPC is .9, then it could:

Accepted Answer

A) decrease taxes by $6 billion. 
B) decrease taxes by $12 billion. 
C) increase government spending by $6 billion. 
D) increase government spending by $12 billion. 
A) decrease taxes by $6 billion. 
B) decrease taxes by $12 billion. 
C) increase government spending by $6 billion. 
D) increase government spending by $12 billion.

Question 11

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. 
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.

Question 12

The key to assessing whether fiscal policy is expansionary is to observe the change in the full-employment budget as a percentage of GDP.

Accepted Answer

A) True 
 B)False

Question 13

Actual deficits are:

Accepted Answer

A) Generally smaller than actual deficits 
B) Generally larger than actual deficits 
C) Identical to actual deficits 
D) Opposite to actual deficits 
A) Generally smaller than actual deficits 
B) Generally larger than actual deficits 
C) Identical to actual deficits 
D) Opposite to actual deficits

Question 14

The net export effect works through international trade to:

Accepted Answer

A) increase the effectiveness of expansionary and contractionary fiscal policy. 
B) decrease the effectiveness of expansionary and contractionary fiscal policy. 
C) decrease the effectiveness of expansionary fiscal policy and increase the effectiveness of contractionary fiscal policy. 
D) increase the effectiveness of expansionary fiscal policy and decrease the effectiveness of contractionary fiscal policy. 
A) increase the effectiveness of expansionary and contractionary fiscal policy. 
B) decrease the effectiveness of expansionary and contractionary fiscal policy. 
C) decrease the effectiveness of expansionary fiscal policy and increase the effectiveness of contractionary fiscal policy. 
D) increase the effectiveness of expansionary fiscal policy and decrease the effectiveness of contractionary fiscal policy.

Question 15

Expansionary fiscal policy is so named because it:

Accepted Answer

A) involves an expansion of the nation's money supply. 
B) necessarily expands the size of government. 
C) is aimed at achieving greater price stability. 
D) is designed to expand real GDP. 
A) involves an expansion of the nation's money supply. 
B) necessarily expands the size of government. 
C) is aimed at achieving greater price stability. 
D) is designed to expand real GDP.

Question 16

Built-in stabilizers:

Accepted Answer

A) intensify the business cycle. 
B) reduce the size of the multiplier. 
C) increase the government's deficit during a recession. 
D) are a part of discretionary fiscal policy. 
A) intensify the business cycle. 
B) reduce the size of the multiplier. 
C) increase the government's deficit during a recession. 
D) are a part of discretionary fiscal policy.

Question 17

Refer to the above graph.If the economy was initially in equilibrium at point 3 and interest rates increase by 4 percentage points, then the crowding-out effect would be:

Accepted Answer

A) $10 billion in investment. 
B) $20 billion in investment. 
C) $30 billion in investment. 
D) $35 billion in investment. 
A) $10 billion in investment. 
B) $20 billion in investment. 
C) $30 billion in investment. 
D) $35 billion in investment.

Question 18

The "crowding-out effect" suggests that:

Accepted Answer

A) tax increases are paid primarily out of saving and therefore are not an effective fiscal device. 
B) increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. 
C) it is very difficult to have excessive aggregate spending in our economy. 
D) consumer and investment spending always vary inversely. 
A) tax increases are paid primarily out of saving and therefore are not an effective fiscal device. 
B) increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. 
C) it is very difficult to have excessive aggregate spending in our economy. 
D) consumer and investment spending always vary inversely.

Question 19

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 20

With the expenditures programs and the tax system shown in the above diagram:

Accepted Answer

A) the public budget will be expansionary at all GDP levels above K, and contractionary at all GDP levels below K. 
B) the public budget will be a destabilizing force at all levels of GDP. 
C) deficits will be realized at income levels below K, and surpluses above K. 
D) deficits will be realized at income levels below H, and surpluses above H. 
A) the public budget will be expansionary at all GDP levels above K, and contractionary at all GDP levels below K. 
B) the public budget will be a destabilizing force at all levels of GDP. 
C) deficits will be realized at income levels below K, and surpluses above K. 
D) deficits will be realized at income levels below H, and surpluses above H.

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

The higher domestic interest rate resulting from an expansionary fiscal policy in Canada will tend to:

Increased government spending for investments such as highways or harbours financed by increasing the public debt would most likely:

The crowding-out effect of borrowing to finance the public debt:

One of the timing problems with fiscal policy is an "operational lag" that occurs between the:

The most likely way the public debt burdens future generations is by:

A tax reduction of a specific amount will be more expansionary, the:

Which of the following is an example of an automatic stabilizer? As real GDP decreases, income tax revenues:

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

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:

In an economy, the government wants to increase aggregate demand by $60 billion at each price level to increase real GDP and reduce unemployment.If the MPC is .9, then it could:

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:

The key to assessing whether fiscal policy is expansionary is to observe the change in the full-employment budget as a percentage of GDP.

Actual deficits are:

The net export effect works through international trade to:

Expansionary fiscal policy is so named because it:

Built-in stabilizers:

Refer to the above graph.If the economy was initially in equilibrium at point 3 and interest rates increase by 4 percentage points, then the crowding-out effect would be:

The "crowding-out effect" suggests that:

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.

With the expenditures programs and the tax system shown in the above diagram:

B: Limits, Alternatives, and Choices

A: - Limits, Alternatives, and Choices

B: The Market System and the Circular Flow

A: - The Market System and the Circular Flow

B: Demand, Supply, and Market Equilibrium

A: - Demand, Supply, and Market Equilibrium

B: Market Failures: Public Goods and Externalities

A: - Market Failures: Public Goods and Externalities

B: Governments Role and Government Failure

A: Governments Role and Government Failure

B: an Introduction to Macroeconomics

A: an Introduction to Macroeconomics

B: Measuring the Economys Output

A: Measuring the Economys Output

B: Economic Growth

A: Economic Growth

B: Business Cycles, Unemployment, and Inflation

A: Business Cycles, Unemployment, and Inflation

B: Basic Macroeconomic Relationships

A: Basic Macroeconomic Relationships

B: The Aggregate Expenditures Model

A: The Aggregate Expenditures Model

B: Aggregate Demand and Aggregate Supply

A: Aggregate Demand and Aggregate Supply

A: Fiscal Policy, Deficits, Surpluses, and Debt

B: Money, Banking, and Money Creation

A: Money, Banking, and Money Creation

B: Interest Rates and Monetary Policy

A: Interest Rates and Monetary Policy

C: Financial Economics

A: Long-Run Macroeconomic Adjustments

B: Long-Run Macroeconomic Adjustments

A: International Trade

B: International Trade

A: The Balance of Payments and Exchange Rates

B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

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