Question 1

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. 
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.

Question 2

Which of the following statements is correct?

Accepted Answer

A) Built-in stability only partially offsets fluctuations in economic activity. 
B) Built-in stability works in halting inflation, but it cannot alleviate unemployment. 
C) Built-in stability can be relied on to eliminate completely any fluctuation in economic activity. 
D) Built-in stability overcorrects for fluctuations in economic activity; for example, it may change a small expansion into a recession. 
A) Built-in stability only partially offsets fluctuations in economic activity. 
B) Built-in stability works in halting inflation, but it cannot alleviate unemployment. 
C) Built-in stability can be relied on to eliminate completely any fluctuation in economic activity. 
D) Built-in stability overcorrects for fluctuations in economic activity; for example, it may change a small expansion into a recession.

Question 3

Refer to the diagram below.Which tax system will generate the largest cyclical deficits?

Accepted Answer

A) T4 
B) T3 
C) T2 
D) T1 
A) T4 
B) T3 
C) T2 
D) T1

Question 4

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 tax 
A) interest rates 
B) exchange rates 
C) the inflation rate 
D) the progressive income tax

Question 5

Assume the government incurs a budget deficit which is financed by borrowing.As a result, interest rates rise and the volume of private investment spending declines.This illustrates:

Accepted Answer

A) the equation-of-exchange effect. 
B) the paradox of thrift. 
C) the crowding-out effect. 
D) the money-fund effect. 
A) the equation-of-exchange effect. 
B) the paradox of thrift. 
C) the crowding-out effect. 
D) the money-fund effect.

Question 6

When the economy is at full employment:

Accepted Answer

A) one cannot generalize in comparing the actual and the full-employment budgets. 
B) the full-employment budget will show a surplus and the actual budget will show a deficit. 
C) the actual budget will show a surplus and the full-employment budget will show a deficit. 
D) the actual and the full-employment budgets will be equal. 
A) one cannot generalize in comparing the actual and the full-employment budgets. 
B) the full-employment budget will show a surplus and the actual budget will show a deficit. 
C) the actual budget will show a surplus and the full-employment budget will show a deficit. 
D) the actual and the full-employment budgets will be equal.

Question 7

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. 
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.

Question 8

If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion at each price level by:

Accepted Answer

A) reducing government expenditures by $12 billion. 
B) reducing government expenditures by $60 billion. 
C) increasing taxes by $15 billion. 
D) increasing taxes by $20 billion. 
A) reducing government expenditures by $12 billion. 
B) reducing government expenditures by $60 billion. 
C) increasing taxes by $15 billion. 
D) increasing taxes by $20 billion.

Question 9

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

Question 10

An economist who advocates discretionary fiscal policy would recommend:

Accepted Answer

A) tax cuts during recession and reductions in government spending during inflation. 
B) tax increases during recession and tax cuts during inflation. 
C) tax cuts during recession and tax increases during inflation. 
D) increases in government spending during recession and tax increases during inflation. 
A) tax cuts during recession and reductions in government spending during inflation. 
B) tax increases during recession and tax cuts during inflation. 
C) tax cuts during recession and tax increases during inflation. 
D) increases in government spending during recession and tax increases during inflation.

Question 11

A major advantage of the built-in or automatic stabilizers is that they:

Accepted Answer

A) simultaneously stabilize the economy and reduce the absolute size of the public debt. 
B) automatically produce surpluses during recessions and deficits during inflations. 
C) require no discretionary budgetary policy. 
D) guarantee that the federal budget will be balanced over the course of the business cycle. 
A) simultaneously stabilize the economy and reduce the absolute size of the public debt. 
B) automatically produce surpluses during recessions and deficits during inflations. 
C) require no discretionary budgetary policy. 
D) guarantee that the federal budget will be balanced over the course of the business cycle.

Question 12

Automatic stabilizers will reduce tax revenues during recessions and increase tax revenues during periods of strong economic growth.

Accepted Answer

A) True 
 B)False

Question 13

If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion at each price level by:

Accepted Answer

A) increasing government spending by $25 billion. 
B) increasing government spending by $80 billion. 
C) decreasing taxes by $25 billion. 
D) decreasing taxes by $100 billion. 
A) increasing government spending by $25 billion. 
B) increasing government spending by $80 billion. 
C) decreasing taxes by $25 billion. 
D) decreasing taxes by $100 billion.

Question 14

Who among the following owned the largest percentage of Canada's public debt in 2016, using Figure 13-7?

Accepted Answer

A) Public and chartered banks 
B) Nonresidents 
C) The Bank of Canada 
D) China 
A) Public and chartered banks 
B) Nonresidents 
C) The Bank of Canada 
D) China

Question 15

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 16

An appropriate fiscal policy for a severe recession is:

Accepted Answer

A) a decrease in government spending. 
B) a decrease in tax rates. 
C) appreciation of the dollar. 
D) an increase in interest rates. 
A) a decrease in government spending. 
B) a decrease in tax rates. 
C) appreciation of the dollar. 
D) an increase in interest rates.

Question 17

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

Question 18

If the government adopts a fiscal policy that is:

Accepted Answer

A) expansionary, then net exports are likely to expand and reinforce the effects of the fiscal policy. 
B) contractionary, then net exports are likely to decline and partially offset the effects of the fiscal policy. 
C) contractionary, then net exports are likely to rise and reinforce the effects of the fiscal policy. 
D) expansionary, then net exports are likely to decline and partially offset the effects of the fiscal policy. 
A) expansionary, then net exports are likely to expand and reinforce the effects of the fiscal policy. 
B) contractionary, then net exports are likely to decline and partially offset the effects of the fiscal policy. 
C) contractionary, then net exports are likely to rise and reinforce the effects of the fiscal policy. 
D) expansionary, then net exports are likely to decline and partially offset the effects of the fiscal policy.

Question 19

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

Accepted Answer

A) T4 
B) T3 
C) T2 
D) T1 
A) T4 
B) T3 
C) T2 
D) T1

Question 20

Refer to the above diagram.Initially assume that the investment demand curve is Id1.Which of the following effects of a budget deficit might shift the investment demand curve from Id1 to Id2, wholly offsetting any crowding-out effect?

Accepted Answer

A) an improvement in profit expectations by businesses 
B) a decrease in saving 
C) a decline in the interest rate 
D) an increase in the marginal propensity to consume 
A) an improvement in profit expectations by businesses 
B) a decrease in saving 
C) a decline in the interest rate 
D) an increase in the marginal propensity to consume

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

Built-in stability means that:

Which of the following statements is correct?

Refer to the diagram below.Which tax system will generate the largest cyclical deficits?

Which is regarded as an automatic stabilizer in the economy?

Assume the government incurs a budget deficit which is financed by borrowing.As a result, interest rates rise and the volume of private investment spending declines.This illustrates:

When the economy is at full employment:

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

If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion at each price level by:

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

An economist who advocates discretionary fiscal policy would recommend:

A major advantage of the built-in or automatic stabilizers is that they:

Automatic stabilizers will reduce tax revenues during recessions and increase tax revenues during periods of strong economic growth.

If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion at each price level by:

Who among the following owned the largest percentage of Canada's public debt in 2016, using Figure 13-7?

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

An appropriate fiscal policy for a severe recession is:

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:

If the government adopts a fiscal policy that is:

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

Refer to the above diagram.Initially assume that the investment demand curve is Id1.Which of the following effects of a budget deficit might shift the investment demand curve from Id1 to Id2, wholly offsetting any crowding-out effect?

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

Filters

Refer to the above diagram.Initially assume that the investment demand curve is I_d1.Which of the following effects of a budget deficit might shift the investment demand curve from I_d1 to I_d2, wholly offsetting any crowding-out effect?