Question 1

If economists predict that the inflation will increase, the government should:

Accepted Answer

A) decrease government spending. 
B) decrease taxes. 
C) lower interest rates. 
D) conduct expansionary fiscal policy. 
A) decrease government spending. 
B) decrease taxes. 
C) lower interest rates. 
D) conduct expansionary fiscal policy.

Question 2

According to Friedman and Phelps, if the actual inflation rate exceeds expectations of inflation, then:

Accepted Answer

A) the actual real wage is greater than the expected real wage. 
B) the unemployment rate will fall. 
C) the actual real wage will equal the expected real wage. 
D) firms will hire fewer workers than they had planned. 
A) the actual real wage is greater than the expected real wage. 
B) the unemployment rate will fall. 
C) the actual real wage will equal the expected real wage. 
D) firms will hire fewer workers than they had planned.

Question 3

What is the difference between 'discretionary fiscal policy' and 'automatic stabilisers'?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Discretionary fiscal policy is when the

Question 4

An 'automatic stabiliser' is:

Accepted Answer

A) a policy for growth of an economy where the current account of the balance of payments is kept in balance. 
B) a monetary or fiscal policy that aims to smooth out the business cycle. 
C) the tendency for inflation to fall as unemployment rises. 
D) a tax or form of government expenditure that has the effect of reducing the size of business cycle fluctuations. 
A) a policy for growth of an economy where the current account of the balance of payments is kept in balance. 
B) a monetary or fiscal policy that aims to smooth out the business cycle. 
C) the tendency for inflation to fall as unemployment rises. 
D) a tax or form of government expenditure that has the effect of reducing the size of business cycle fluctuations.

Question 5

Active changes in tax and spending by government intended to smooth out the business cycle are called ________, and changes in taxes and spending that occur passively over the business cycle are called ________.

Accepted Answer

A) automatic stabilisers; discretionary fiscal policy 
B) discretionary fiscal policy; automatic stabilisers 
C) automatic stabilisers; monetary policy 
D) discretionary fiscal policy; conscious fiscal policy 
A) automatic stabilisers; discretionary fiscal policy 
B) discretionary fiscal policy; automatic stabilisers 
C) automatic stabilisers; monetary policy 
D) discretionary fiscal policy; conscious fiscal policy

Question 6

Suppose that the nominal wage, the expected and actual price levels, and the expected and actual inflation rates for a hypothetical economy in 2017 are presented in the following table.
 
Given the data, we know that:

Accepted Answer

A) the actual real wage is greater than the expected real wage. 
B) the unemployment rate will rise. 
C) firms will hire more workers than they planned. 
D) the unemployment rate will not change. 
A) the actual real wage is greater than the expected real wage. 
B) the unemployment rate will rise. 
C) firms will hire more workers than they planned. 
D) the unemployment rate will not change.

Question 7

Between 1970 and 2016 in Australia, the largest budget deficits occurred:

Accepted Answer

A) during the early to mid-1980s. 
B) during the early 1990s. 
C) between 2009 and 2011. 
D) following the 1974 oil price shock. 
A) during the early to mid-1980s. 
B) during the early 1990s. 
C) between 2009 and 2011. 
D) following the 1974 oil price shock.

Question 8

Which of the following does not function as an automatic stabiliser?

Accepted Answer

A) Unemployment benefit payments. 
B) Government expenditure on road building programs. 
C) The Goods and Services Tax (GST). 
D) The personal income tax system. 
A) Unemployment benefit payments. 
B) Government expenditure on road building programs. 
C) The Goods and Services Tax (GST). 
D) The personal income tax system.

Question 9

Which of the following is an automatic stabiliser?

Accepted Answer

A) Interest rate changes. 
B) Increases in government spending on schools. 
C) Reductions in nominal wages as inflation rates rise. 
D) Unemployment benefit payments to the unemployed. 
A) Interest rate changes. 
B) Increases in government spending on schools. 
C) Reductions in nominal wages as inflation rates rise. 
D) Unemployment benefit payments to the unemployed.

Question 10

A change in tax rates:

Accepted Answer

A) has a less complicated effect on GDP than does a tax cut of a fixed amount. 
B) has a larger multiplier effect the smaller the tax rate. 
C) will not affect disposable income. 
D) will not affect the size of the multiplier. 
A) has a less complicated effect on GDP than does a tax cut of a fixed amount. 
B) has a larger multiplier effect the smaller the tax rate. 
C) will not affect disposable income. 
D) will not affect the size of the multiplier.

Question 11

Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally:

Accepted Answer

A) less difficult than with monetary policy. 
B) far less difficult than with monetary policy. 
C) more difficult than with monetary policy. 
D) about the same difficulty as with monetary policy. 
A) less difficult than with monetary policy. 
B) far less difficult than with monetary policy. 
C) more difficult than with monetary policy. 
D) about the same difficulty as with monetary policy.

Question 12

If the absolute value of the tax multiplier equals 1.5, real GDP is $13 trillion, and potential GDP is $13.6 trillion, then taxes would need to be cut by ________ to restore the economy to potential GDP.

Accepted Answer

A) $400 billion 
B) $450 billion 
C) $600 billion 
D) None of these options is correct. Taxes should be increased in this case. 
A) $400 billion 
B) $450 billion 
C) $600 billion 
D) None of these options is correct. Taxes should be increased in this case.

Question 13

How could the existence of unemployment benefits or other transfer programs reduce the severity of an economic contraction?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Workers who are laid off during an econo

Question 14

A federal budget deficit acts as an automatic stabiliser because:

Accepted Answer

A) government tax revenues decrease during a recession. 
B) unemployment benefit payments decrease during a recession. 
C) tax receipts decrease during expansionary periods. 
D) Medicare payments increase during expansionary periods. 
A) government tax revenues decrease during a recession. 
B) unemployment benefit payments decrease during a recession. 
C) tax receipts decrease during expansionary periods. 
D) Medicare payments increase during expansionary periods.

Question 15

During an 'economic contraction', why is it likely that the federal government budget will move into deficit?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Contractions increase the federal budget

Question 16

During economic contractions, government expenditure automatically:

Accepted Answer

A) falls because of programs such as unemployment benefits. 
B) rises because of programs such as unemployment benefits. 
C) falls because of the progressive income tax system. 
D) rises because of the progressive income tax system. 
A) falls because of programs such as unemployment benefits. 
B) rises because of programs such as unemployment benefits. 
C) falls because of the progressive income tax system. 
D) rises because of the progressive income tax system.

Question 17

Is government debt bad for the economy?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

In times of a recession, governments oft

Question 18

Give examples of 'automatic stabilisers'. Explain how automatic stabilisers work when there is an economic boom.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Examples of automatic stabilisers are un

Question 19

By decreasing government spending and aggregate demand, the policy ________ the price level and ________ equilibrium real GDP, ceteris paribus.

Accepted Answer

A) decreases; increases 
B) increases; decreases 
C) increases; increases 
D) decreases; decreases 
A) decreases; increases 
B) increases; decreases 
C) increases; increases 
D) decreases; decreases

Question 20

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Accepted Answer

A) True 
 B)False

If economists predict that the inflation will increase, the government should:

According to Friedman and Phelps, if the actual inflation rate exceeds expectations of inflation, then:

What is the difference between 'discretionary fiscal policy' and 'automatic stabilisers'? _ _

An 'automatic stabiliser' is:

Active changes in tax and spending by government intended to smooth out the business cycle are called , and changes in taxes and spending that occur passively over the business cycle are called .

Suppose that the nominal wage, the expected and actual price levels, and the expected and actual inflation rates for a hypothetical economy in 2017 are presented in the following table. Given the data, we know that:

Between 1970 and 2016 in Australia, the largest budget deficits occurred:

Which of the following does not function as an automatic stabiliser?

Which of the following is an automatic stabiliser?

A change in tax rates:

Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally:

If the absolute value of the tax multiplier equals 1.5, real GDP is $13 trillion, and potential GDP is $13.6 trillion, then taxes would need to be cut by ________ to restore the economy to potential GDP.

How could the existence of unemployment benefits or other transfer programs reduce the severity of an economic contraction? _ _

A federal budget deficit acts as an automatic stabiliser because:

During an 'economic contraction', why is it likely that the federal government budget will move into deficit? _ _

During economic contractions, government expenditure automatically:

Is government debt bad for the economy? _ _

Give examples of 'automatic stabilisers'. Explain how automatic stabilisers work when there is an economic boom. _ _

By decreasing government spending and aggregate demand, the policy the price level and equilibrium real GDP, ceteris paribus.

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Economics: Foundations and Models

Choices and Trade Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Gdp: Measuring Total Production, Income and Economic Growth

Economic Growth, the Financial System and Business Cycles

Long-Run Economic Growth: Sources and Policies

Unemployment

Inflation

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks and the Reserve Bank of Australia

Monetary Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 13: Fiscal Policy

If economists predict that the inflation will increase, the government should:

According to Friedman and Phelps, if the actual inflation rate exceeds expectations of inflation, then:

What is the difference between 'discretionary fiscal policy' and 'automatic stabilisers'? _____________________________________________________________________________________________ _____________________________________________________________________________________________

An 'automatic stabiliser' is:

Active changes in tax and spending by government intended to smooth out the business cycle are called ________, and changes in taxes and spending that occur passively over the business cycle are called ________.

Suppose that the nominal wage, the expected and actual price levels, and the expected and actual inflation rates for a hypothetical economy in 2017 are presented in the following table. Given the data, we know that:

Between 1970 and 2016 in Australia, the largest budget deficits occurred:

Which of the following does not function as an automatic stabiliser?

Which of the following is an automatic stabiliser?

A change in tax rates:

Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally:

If the absolute value of the tax multiplier equals 1.5, real GDP is $13 trillion, and potential GDP is $13.6 trillion, then taxes would need to be cut by ________ to restore the economy to potential GDP.

A federal budget deficit acts as an automatic stabiliser because:

During an 'economic contraction', why is it likely that the federal government budget will move into deficit? _____________________________________________________________________________________________ _____________________________________________________________________________________________

During economic contractions, government expenditure automatically:

Is government debt bad for the economy? _____________________________________________________________________________________________ _____________________________________________________________________________________________

By decreasing government spending and aggregate demand, the policy ________ the price level and ________ equilibrium real GDP, ceteris paribus.

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Economics: Foundations and Models

Choices and Trade Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Gdp: Measuring Total Production, Income and Economic Growth

Economic Growth, the Financial System and Business Cycles

Long-Run Economic Growth: Sources and Policies

Unemployment

Inflation

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks and the Reserve Bank of Australia

Monetary Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

What is the difference between 'discretionary fiscal policy' and 'automatic stabilisers'? _ _

Active changes in tax and spending by government intended to smooth out the business cycle are called , and changes in taxes and spending that occur passively over the business cycle are called .

During an 'economic contraction', why is it likely that the federal government budget will move into deficit? _ _

Is government debt bad for the economy? _ _

By decreasing government spending and aggregate demand, the policy the price level and equilibrium real GDP, ceteris paribus.