Question 1

Which of the following is an example of a fiscal policy designed to counter a recessionary gap?

Accepted Answer

A) increasing debt interest payments 
B) increasing taxes 
C) decreasing transfer payments 
D) increasing transfer payments 
E) decreasing government expenditures on goods and services 
A) increasing debt interest payments 
B) increasing taxes 
C) decreasing transfer payments 
D) increasing transfer payments 
E) decreasing government expenditures on goods and services

Question 2

If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is ________ billion.

Accepted Answer

A) $25 
B) $50 
C) $75 
D) $100 
E) $125 
A) $25 
B) $50 
C) $75 
D) $100 
E) $125

Question 3

If we compare the United States to France, we see that potential GDP per person in France is ________ than that in the United States because the French tax wedge is ________ than the U.S. tax wedge.

Accepted Answer

A) greater; larger 
B) greater; smaller 
C) less; larger 
D) less; smaller 
E) none of the above 
A) greater; larger 
B) greater; smaller 
C) less; larger 
D) less; smaller 
E) none of the above

Question 4

An income tax ________ potential GDP by shifting the labour ________.

Accepted Answer

A) increases; demand curve rightward 
B) decreases; demand curve rightward 
C) increases; supply curve rightward 
D) decreases; supply curve leftward 
E) increases; supply curve and labour demand curve rightward 
A) increases; demand curve rightward 
B) decreases; demand curve rightward 
C) increases; supply curve rightward 
D) decreases; supply curve leftward 
E) increases; supply curve and labour demand curve rightward

Question 5

The government increases the tax rate on labour income. At the equilibrium level of employment, the before-tax wage rate ________ and the after-tax wage rate ________.

Accepted Answer

A) rises; falls 
B) falls; rises 
C) rises; rises 
D) falls; falls 
E) rises; does not change 
A) rises; falls 
B) falls; rises 
C) rises; rises 
D) falls; falls 
E) rises; does not change

Question 6

If the economy is in a recession, and the government has a budget deficit, then there

Accepted Answer

A) must be a structural deficit. 
B) must be a structural surplus. 
C) may be a structural deficit, but not a structural surplus. 
D) may be a structural surplus, but not a structural deficit. 
E) may be either a structural surplus or deficit. 
A) must be a structural deficit. 
B) must be a structural surplus. 
C) may be a structural deficit, but not a structural surplus. 
D) may be a structural surplus, but not a structural deficit. 
E) may be either a structural surplus or deficit.

Question 7

The Laffer curve shows that increasing ________ increases ________ when ________ low.

Accepted Answer

A) tax revenue; potential GDP; tax revenue is 
B) the tax rate; tax revenue; the tax rate is 
C) potential GDP; tax revenue; tax revenue is 
D) government outlays; the budget deficit; government expenditure is 
E) investment; potential GDP; the interest rate is 
A) tax revenue; potential GDP; tax revenue is 
B) the tax rate; tax revenue; the tax rate is 
C) potential GDP; tax revenue; tax revenue is 
D) government outlays; the budget deficit; government expenditure is 
E) investment; potential GDP; the interest rate is

Question 8

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

Accepted Answer

A) shifts the AD curve rightward. 
B) shifts the SAS curve rightward. 
C) shifts the LAS curve rightward. 
D) all of the above 
E) only B and C 
A) shifts the AD curve rightward. 
B) shifts the SAS curve rightward. 
C) shifts the LAS curve rightward. 
D) all of the above 
E) only B and C

Question 9

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. If real GDP equals $550 billion, the budget is

Accepted Answer

A) in balance. 
B) a surplus of $60 billion. 
C) a surplus of $40 billion. 
D) a deficit of $60 billion. 
E) a deficit of $40 billion. 
A) in balance. 
B) a surplus of $60 billion. 
C) a surplus of $40 billion. 
D) a deficit of $60 billion. 
E) a deficit of $40 billion.

Question 10

The main components of government revenues are

Accepted Answer

A) transfer payments, investment income, and indirect taxes. 
B) personal income taxes, corporate income taxes, indirect taxes, and investment income. 
C) debt interest, expenditures on goods and services, and income taxes. 
D) corporate income taxes, indirect taxes, and transfer payments. 
E) debt interest, corporate income taxes, and income taxes. 
A) transfer payments, investment income, and indirect taxes. 
B) personal income taxes, corporate income taxes, indirect taxes, and investment income. 
C) debt interest, expenditures on goods and services, and income taxes. 
D) corporate income taxes, indirect taxes, and transfer payments. 
E) debt interest, corporate income taxes, and income taxes.

Question 11

Which of the following is not a source of government revenues?

Accepted Answer

A) personal income taxes 
B) transfer payments 
C) corporate income taxes 
D) indirect taxes 
E) investment income 
A) personal income taxes 
B) transfer payments 
C) corporate income taxes 
D) indirect taxes 
E) investment income

Question 12

Discretionary fiscal policy

Accepted Answer

A) requires action by Parliament. 
B) is triggered by the state of the economy. 
C) involves only a change in government outlays and no change in revenues. 
D) involves only a change in personal income tax rates. 
E) occurs during recessions but not during expansions. 
A) requires action by Parliament. 
B) is triggered by the state of the economy. 
C) involves only a change in government outlays and no change in revenues. 
D) involves only a change in personal income tax rates. 
E) occurs during recessions but not during expansions.

Question 13

If the budget deficit is $50 billion and the structural deficit is $10 billion, the cyclical deficit is

Accepted Answer

A) $10 billion. 
B) $40 billion. 
C) $60 billion. 
D) $50 billion 
E) $20 billion. 
A) $10 billion. 
B) $40 billion. 
C) $60 billion. 
D) $50 billion 
E) $20 billion.

Question 14

Outlays as a percentage of provincial GDP are the highest in ________, whereas the largest transfers from the federal government are made to ________.

Accepted Answer

A) Ontario; Northern Canada and the Atlantic provinces 
B) British Columbia; Northern Canada and the Atlantic provinces 
C) Alberta; Northern Canada and the Atlantic provinces 
D) Northern Canada; Northern Canada and the Atlantic provinces 
E) Northern Canada and the Atlantic provinces; Quebec 
A) Ontario; Northern Canada and the Atlantic provinces 
B) British Columbia; Northern Canada and the Atlantic provinces 
C) Alberta; Northern Canada and the Atlantic provinces 
D) Northern Canada; Northern Canada and the Atlantic provinces 
E) Northern Canada and the Atlantic provinces; Quebec

Question 15

An income tax cut that provides a greater incentive to work than an alternative tax cut will result in comparatively

Accepted Answer

A) higher long-run real GDP and a higher price level. 
B) higher long-run real GDP and a lower price level. 
C) the same level of long-run real GDP and price level. 
D) the same level of long-run real GDP and a higher price level. 
E) the same level of long-run real GDP and a lower price level. 
A) higher long-run real GDP and a higher price level. 
B) higher long-run real GDP and a lower price level. 
C) the same level of long-run real GDP and price level. 
D) the same level of long-run real GDP and a higher price level. 
E) the same level of long-run real GDP and a lower price level.

Question 16

Choose the correct statement.

Accepted Answer

A) Contractionary fiscal policy can eliminate inflationary pressure. 
B) Eliminating an inflationary gap is very simple - calculate the size of the gap and the size of the multiplier, then change government expenditure for an immediate decrease in real GDP. 
C) When an economy is in an above full-employment equilibrium, an equal decrease in government expenditure and autonomous taxes cannot return the economy to full employment. 
D) When an economy is in an above full-employment equilibrium, an increase in taxes will decrease aggregate demand, but because the autonomous tax multiplier is smaller than the government expenditure multiplier, the economy will not return to potential GDP. 
E) All of the above 
A) Contractionary fiscal policy can eliminate inflationary pressure. 
B) Eliminating an inflationary gap is very simple - calculate the size of the gap and the size of the multiplier, then change government expenditure for an immediate decrease in real GDP. 
C) When an economy is in an above full-employment equilibrium, an equal decrease in government expenditure and autonomous taxes cannot return the economy to full employment. 
D) When an economy is in an above full-employment equilibrium, an increase in taxes will decrease aggregate demand, but because the autonomous tax multiplier is smaller than the government expenditure multiplier, the economy will not return to potential GDP. 
E) All of the above

Question 17

The government of Ricardia's budget lists the following projected revenues and outlays: $25 million in personal income taxes, $15 million in corporate income taxes, $5 million in indirect taxes, $2 million in investment income, $30 million in transfer payments, $12 million in government expenditure, and $8 million in debt interest. Ricardia has a government budget

Accepted Answer

A) surplus of $3 million. 
B) surplus of $57 million. 
C) surplus of $13 million. 
D) deficit of $13 million. 
E) deficit of $3 million. 
A) surplus of $3 million. 
B) surplus of $57 million. 
C) surplus of $13 million. 
D) deficit of $13 million. 
E) deficit of $3 million.

Exam 29: Fiscal Policy

Which of the following is an example of a fiscal policy designed to counter a recessionary gap?

If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is ________ billion.

If we compare the United States to France, we see that potential GDP per person in France is ________ than that in the United States because the French tax wedge is ________ than the U.S. tax wedge.

An income tax ________ potential GDP by shifting the labour ________.

The government increases the tax rate on labour income. At the equilibrium level of employment, the before-tax wage rate ________ and the after-tax wage rate ________.

If the economy is in a recession, and the government has a budget deficit, then there

The Laffer curve shows that increasing ________ increases ________ when ________ low.

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

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. If real GDP equals $550 billion, the budget is

The main components of government revenues are

Which of the following is not a source of government revenues?

Discretionary fiscal policy

If the budget deficit is $50 billion and the structural deficit is $10 billion, the cyclical deficit is

Outlays as a percentage of provincial GDP are the highest in ________, whereas the largest transfers from the federal government are made to ________.

An income tax cut that provides a greater incentive to work than an alternative tax cut will result in comparatively

Choose the correct statement.

What Is Economics

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If we compare the United States to France, we see that potential GDP per person in France is than that in the United States because the French tax wedge is than the U.S. tax wedge.

An income tax potential GDP by shifting the labour .

The government increases the tax rate on labour income. At the equilibrium level of employment, the before-tax wage rate and the after-tax wage rate .

The Laffer curve shows that increasing increases when low.

Outlays as a percentage of provincial GDP are the highest in , whereas the largest transfers from the federal government are made to .