Question 1

The difference between the before-tax and after-tax rates is the

Accepted Answer

A) tax plug. 
B) deadweight gain. 
C) tax wedge. 
D) taxation penalty. 
E) deadweight loss. 
A) tax plug. 
B) deadweight gain. 
C) tax wedge. 
D) taxation penalty. 
E) deadweight loss. C

Question 2

Consider all the effects of fiscal policy. A cut in the income tax

Accepted Answer

A) shifts the AD curve rightward but does not shift either the LAS or SAS curve. 
B) shifts the AD, SAS, and LAS curves rightward. 
C) shifts the SAS curve rightward but does not shift either the AD or LAS curve. 
D) shifts both the SAS and LAS curves rightward but does not shift the AD curve. 
E) shifts the LAS curve rightward but does not shift either the AD or SAS curve. 
A) shifts the AD curve rightward but does not shift either the LAS or SAS curve. 
B) shifts the AD, SAS, and LAS curves rightward. 
C) shifts the SAS curve rightward but does not shift either the AD or LAS curve. 
D) shifts both the SAS and LAS curves rightward but does not shift the AD curve. 
E) shifts the LAS curve rightward but does not shift either the AD or SAS curve. B

Question 3

In 2013, Canada had

Accepted Answer

A) a structural deficit and a cyclical deficit. 
B) a structural deficit and a cyclical surplus. 
C) a structural surplus and a cyclical deficit. 
D) a structural surplus and a cyclical surplus. 
E) a balanced structural budget and a cyclical deficit. 
A) a structural deficit and a cyclical deficit. 
B) a structural deficit and a cyclical surplus. 
C) a structural surplus and a cyclical deficit. 
D) a structural surplus and a cyclical surplus. 
E) a balanced structural budget and a cyclical deficit. A

Question 4

Which of the following is an example of a fiscal restraint policy?

Accepted Answer

A) increasing government expenditure 
B) increasing taxes 
C) cutting transfer payments 
D) both A and B 
E) both B and C 
A) increasing government expenditure 
B) increasing taxes 
C) cutting transfer payments 
D) both A and B 
E) both B and C

Question 5

The largest source of revenues for the federal government is

Accepted Answer

A) transfer payments. 
B) expenditures on goods and services. 
C) personal income taxes. 
D) corporate income taxes. 
E) indirect taxes such as the GST. 
A) transfer payments. 
B) expenditures on goods and services. 
C) personal income taxes. 
D) corporate income taxes. 
E) indirect taxes such as the GST.

Question 6

If outlays exceed revenues, the government's budget balance is ________, and the government has a budget ________.

Accepted Answer

A) negative; deficit 
B) positive; surplus 
C) positive; deficit 
D) negative; surplus 
E) zero; surplus 
A) negative; deficit 
B) positive; surplus 
C) positive; deficit 
D) negative; surplus 
E) zero; surplus

Question 7

The Federal Budget of 2013 shows

Accepted Answer

A) a government budget surplus. 
B) a balanced budget. 
C) a government budget deficit. 
D) a decreasing government debt. 
E) revenues greater than outlays. 
A) a government budget surplus. 
B) a balanced budget. 
C) a government budget deficit. 
D) a decreasing government debt. 
E) revenues greater than outlays.

Question 8

The Laffer Curve has been criticized by mainstream economists because

Accepted Answer

A) there is no theoretical possibility of higher tax rates leading to lower tax revenues. 
B) higher tax rates do not create negative incentive effects. 
C) tax cuts are just spent, not saved as predicted by the theory. 
D) savers look only at real interest rates, not nominal interest rates. 
E) empirically, tax cuts have not led to higher tax revenues. 
A) there is no theoretical possibility of higher tax rates leading to lower tax revenues. 
B) higher tax rates do not create negative incentive effects. 
C) tax cuts are just spent, not saved as predicted by the theory. 
D) savers look only at real interest rates, not nominal interest rates. 
E) empirically, tax cuts have not led to higher tax revenues.

Question 9

The economy is in a recession and the recessionary gap is large. Discretionary fiscal policy that might occur is ________. Automatic fiscal policy that might occur is ________.

Accepted Answer

A) a decrease in transfer payments and an increase in taxes with no interference by Parliament; a decrease in government expenditure and an increase in taxes by a decision of Parliament 
B) an increase in transfer payments and a fall in taxes with no interference by Parliament; an increase in government expenditure and a cut in taxes by a decision of Parliament 
C) an increase in government expenditure and a cut in taxes by a decision of Parliament; an increase in transfer payments and a fall in taxes 
D) a decrease in government expenditure and an increase in taxes by a decision of Parliament; a decrease in transfer payments and an increase in taxes with no interference by Parliament 
E) a decrease in the interest rate; an increase in the quantity of money 
A) a decrease in transfer payments and an increase in taxes with no interference by Parliament; a decrease in government expenditure and an increase in taxes by a decision of Parliament 
B) an increase in transfer payments and a fall in taxes with no interference by Parliament; an increase in government expenditure and a cut in taxes by a decision of Parliament 
C) an increase in government expenditure and a cut in taxes by a decision of Parliament; an increase in transfer payments and a fall in taxes 
D) a decrease in government expenditure and an increase in taxes by a decision of Parliament; a decrease in transfer payments and an increase in taxes with no interference by Parliament 
E) a decrease in the interest rate; an increase in the quantity of money

Question 10

A structural deficit

Accepted Answer

A) is present only if real GDP is greater than potential. 
B) exists even if real GDP equals potential. 
C) equals the cyclical deficit plus the actual deficit. 
D) is greater than a cyclical deficit. 
E) occurs when the economy is in a recession. 
A) is present only if real GDP is greater than potential. 
B) exists even if real GDP equals potential. 
C) equals the cyclical deficit plus the actual deficit. 
D) is greater than a cyclical deficit. 
E) occurs when the economy is in a recession.

Question 11

Which of the following policies shifts the AD curve the farthest leftward?

Accepted Answer

A) a decrease in government expenditure of $10 billion 
B) an increase in taxes of $10 billion 
C) a decrease in taxes of $10 billion 
D) an increase in government expenditure of $10 billion 
E) a simultaneous increase in government expenditure of $10 billion and taxes of $10 billion 
A) a decrease in government expenditure of $10 billion 
B) an increase in taxes of $10 billion 
C) a decrease in taxes of $10 billion 
D) an increase in government expenditure of $10 billion 
E) a simultaneous increase in government expenditure of $10 billion and taxes of $10 billion

Question 12

A decrease in the tax on capital income ________ the real interest rate and ________ investment and economic growth.

Accepted Answer

A) decreases; increases 
B) increases; increases 
C) decreases; decreases 
D) increases; decreases 
E) decreases; does not change 
A) decreases; increases 
B) increases; increases 
C) decreases; decreases 
D) increases; decreases 
E) decreases; does not change

Question 13

If the nominal interest rate is 11%, the inflation rate is 4% and the tax rate is 25%, what is the real after-tax interest rate?

Accepted Answer

A) -1.25 percent 
B) 4.25 percent 
C) 5.25 percent 
D) 8 percent 
E) 10 percent 
A) -1.25 percent 
B) 4.25 percent 
C) 5.25 percent 
D) 8 percent 
E) 10 percent

Question 14

Increasing taxes on business and investment ________ short-run aggregate supply and ________ potential GDP.

Accepted Answer

A) increases; does not change 
B) decreases; does not change 
C) decreases; decreases 
D) does not change; does not change 
E) increases; decreases 
A) increases; does not change 
B) decreases; does not change 
C) decreases; decreases 
D) does not change; does not change 
E) increases; decreases

Question 15

During a recession, revenues

Accepted Answer

A) and government outlays decrease. 
B) decrease and government outlays increase. 
C) increase and government outlays decrease. 
D) and government outlays increase. 
E) remain constant and government outlays increase. 
A) and government outlays decrease. 
B) decrease and government outlays increase. 
C) increase and government outlays decrease. 
D) and government outlays increase. 
E) remain constant and government outlays increase.

Question 16

Use the figure below to answer the following questions.
   
Figure 29.3.1
-Refer to Figure 29.3.1, which shows the outlays and revenues for the government of Pianoland. Discretionary expansionary fiscal policy would be shown as

Accepted Answer

A) a movement from left to right along the revenues curve. 
B) a movement from left to right along the outlays curve. 
C) an upward shift of the revenues curve. 
D) an upward shift of the outlays curve. 
E) both A and C 
A) a movement from left to right along the revenues curve. 
B) a movement from left to right along the outlays curve. 
C) an upward shift of the revenues curve. 
D) an upward shift of the outlays curve. 
E) both A and C

Question 17

Suppose that in China, investment is $400 billion, saving is $400 billion, tax revenues are $500 billion, exports are $300 billion, and imports are $200 billion. ________ in government expenditure or ________ in taxes will further increase China's budget ________, increase investment and speed economic growth.

Accepted Answer

A) A decrease; an increase; surplus 
B) An increase; a decreases; deficit 
C) An increase; an increase; surplus 
D) A decrease; a decrease; deficit 
E) A decrease; an increase; deficit 
A) A decrease; an increase; surplus 
B) An increase; a decreases; deficit 
C) An increase; an increase; surplus 
D) A decrease; a decrease; deficit 
E) A decrease; an increase; deficit

Question 18

Fiscal policy is

Accepted Answer

A) the use of the federal budget to achieve macroeconomic objectives. 
B) any policy by the Bank of Canada. 
C) budgeting policy by aggregate households. 
D) any attempt by the federal government or Bank of Canada to control inflation. 
E) effective only when the federal government has a budget surplus. 
A) the use of the federal budget to achieve macroeconomic objectives. 
B) any policy by the Bank of Canada. 
C) budgeting policy by aggregate households. 
D) any attempt by the federal government or Bank of Canada to control inflation. 
E) effective only when the federal government has a budget surplus.

Question 19

Which of the following is a government outlay?

Accepted Answer

A) personal income taxes 
B) investment income 
C) debt interest 
D) indirect taxes 
E) corporate income taxes 
A) personal income taxes 
B) investment income 
C) debt interest 
D) indirect taxes 
E) corporate income taxes

Question 20

The Laffer curve is the relationship between

Accepted Answer

A) government expenditure and potential GDP. 
B) the tax rate and potential GDP. 
C) tax revenue and potential GDP. 
D) the tax rate and the amount of tax revenue. 
E) government outlays and revenues. 
A) government expenditure and potential GDP. 
B) the tax rate and potential GDP. 
C) tax revenue and potential GDP. 
D) the tax rate and the amount of tax revenue. 
E) government outlays and revenues.

Exam 29: Fiscal Policy

The difference between the before-tax and after-tax rates is the

Consider all the effects of fiscal policy. A cut in the income tax

In 2013, Canada had

Which of the following is an example of a fiscal restraint policy?

The largest source of revenues for the federal government is

If outlays exceed revenues, the government's budget balance is ________, and the government has a budget ________.

The Federal Budget of 2013 shows

The Laffer Curve has been criticized by mainstream economists because

The economy is in a recession and the recessionary gap is large. Discretionary fiscal policy that might occur is ________. Automatic fiscal policy that might occur is ________.

A structural deficit

Which of the following policies shifts the AD curve the farthest leftward?

A decrease in the tax on capital income ________ the real interest rate and ________ investment and economic growth.

If the nominal interest rate is 11%, the inflation rate is 4% and the tax rate is 25%, what is the real after-tax interest rate?

Increasing taxes on business and investment ________ short-run aggregate supply and ________ potential GDP.

During a recession, revenues

Use the figure below to answer the following questions. Figure 29.3.1 -Refer to Figure 29.3.1, which shows the outlays and revenues for the government of Pianoland. Discretionary expansionary fiscal policy would be shown as

Fiscal policy is

Which of the following is a government outlay?

The Laffer curve is the relationship between

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If outlays exceed revenues, the government's budget balance is , and the government has a budget .

The economy is in a recession and the recessionary gap is large. Discretionary fiscal policy that might occur is . Automatic fiscal policy that might occur is .

A decrease in the tax on capital income the real interest rate and investment and economic growth.

Increasing taxes on business and investment short-run aggregate supply and potential GDP.