Question 1

If government policy makers are worried about the inflationary potential of the economy,which of the following would NOT be a correct fiscal policy change?

Accepted Answer

A) reducing transfer payments 
B) increasing consumption taxes 
C) increasing the budget surplus 
D) increasing government purchases of goods and services 
A) reducing transfer payments 
B) increasing consumption taxes 
C) increasing the budget surplus 
D) increasing government purchases of goods and services

Question 2

Since 1970,the level of government transfer payments has decreased.

Accepted Answer

A) True 
 B)False

Question 3

What are the component parts of fiscal policy and how do they affect aggregate demand?

Accepted Answer

Fiscal policy consis

Question 4

What effect would a combination of an increase in investment and a decrease in imports have on AD?

Accepted Answer

A) It would have an indeterminate effect on AD. 
B) It would decrease AD. 
C) It would leave AD unchanged. 
D) It would increase AD. 
A) It would have an indeterminate effect on AD. 
B) It would decrease AD. 
C) It would leave AD unchanged. 
D) It would increase AD.

Question 5

Running a federal budget deficit would tend to increase real output in the short run,but running persistently large federal budget deficits could result in reducing real output in the long run,other things being equal.

Accepted Answer

A) True 
 B)False

Question 6

Due to crowding-out effects,other things being equal,in what direction will net exports and investment tend to move?

Accepted Answer

A) Net exports and investment will tend to move in the same direction as a change in government purchases. 
B) Net exports will tend to move in the opposite direction as a change in government purchases, and investment will tend to move in the same direction. 
C) Net exports and investment will tend to move in the opposite direction from a change in government purchases. 
D) Net exports will tend to move in the same direction as a change in government purchases, and investment will tend to move in the opposite direction. 
A) Net exports and investment will tend to move in the same direction as a change in government purchases. 
B) Net exports will tend to move in the opposite direction as a change in government purchases, and investment will tend to move in the same direction. 
C) Net exports and investment will tend to move in the opposite direction from a change in government purchases. 
D) Net exports will tend to move in the same direction as a change in government purchases, and investment will tend to move in the opposite direction.

Question 7

Describe the difference between a regressive and a progressive tax.

Accepted Answer

A regressive tax is one for which as the

Question 8

What impact does a smaller crowding-out effect have on the magnitude of a given fiscal policy's effect on AD and net exports?

Accepted Answer

A) It increases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effect on net exports. 
B) It increases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effect on net exports. 
C) It decreases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effect on net exports. 
D) It decreases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effect on net exports. 
A) It increases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effect on net exports. 
B) It increases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effect on net exports. 
C) It decreases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effect on net exports. 
D) It decreases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effect on net exports.

Question 9

Explain what effect an expansionary fiscal policy would have on the price level and real GDP starting from full employment equilibrium.

Accepted Answer

Expansionary fiscal policy at full emplo

Question 10

According to the recognition lag,how long might it take Statistics Canada to identify the beginning of an economic downturn?

Accepted Answer

A) from 3 to six weeks 
B) from 3 months 
C) from 6 to 12 months 
D) from 3 to 6 months 
A) from 3 to six weeks 
B) from 3 months 
C) from 6 to 12 months 
D) from 3 to 6 months

Question 11

Robert lost his job during the last recession and his yearly income fell by 15 percent.As a result of the action of automatic stabilizers,his disposable income fell by less than 15 percent.

Accepted Answer

A) True 
 B)False

Question 12

During a boom expansionary economy,public assistance payments and unemployment compensation payments automatically decrease,while income taxes automatically increase.Which of the following best describes the effect of these changes on aggregate demand?

Accepted Answer

A) Aggregate demand will be less than it was before the expansion. 
B) Aggregate demand will be less than it would be without these automatic stabilizers. 
C) Aggregate demand will be the same as it was before the expansion. 
D) Aggregate demand will be more than it would be without these automatic stabilizers. 
A) Aggregate demand will be less than it was before the expansion. 
B) Aggregate demand will be less than it would be without these automatic stabilizers. 
C) Aggregate demand will be the same as it was before the expansion. 
D) Aggregate demand will be more than it would be without these automatic stabilizers.

Question 13

What effect would an increase in taxes combined with a decrease in government purchases have on AD?

Accepted Answer

A) It would increase AD. 
B) It would leave AD unchanged. 
C) It would decrease AD. 
D) It would have an indeterminate effect on AD. 
A) It would increase AD. 
B) It would leave AD unchanged. 
C) It would decrease AD. 
D) It would have an indeterminate effect on AD.

Question 14

When are budget deficits created?

Accepted Answer

A) when interest on government debt is increasing 
B) when government tax revenues exceeds its spending 
C) when government spending equals its tax revenues 
D) when government spending exceeds its tax revenues 
A) when interest on government debt is increasing 
B) when government tax revenues exceeds its spending 
C) when government spending equals its tax revenues 
D) when government spending exceeds its tax revenues

Question 15

Under which of the following circumstances does an increase in a government budget deficit have a larger effect on AD?

Accepted Answer

A) the more sensitive investment is to a change in interest rates 
B) the more money demand shifts as a result 
C) the less money demand shifts as a result 
D) the smaller the government expenditures exceed tax revenue 
A) the more sensitive investment is to a change in interest rates 
B) the more money demand shifts as a result 
C) the less money demand shifts as a result 
D) the smaller the government expenditures exceed tax revenue

Question 16

What type of tax is designed to take a larger percentage from high incomes as compared to lower incomes?

Accepted Answer

A) Regressive 
B) Positive 
C) Progressive 
D) Negative 
A) Regressive 
B) Positive 
C) Progressive 
D) Negative

Question 17

If net exports increase by $10 billion and the MPC to 0.6,what will the resulting increase in the consumption component of AD be?

Accepted Answer

A) $25 billion 
B) $15 billion 
C) $6 billion 
D) $4 billion 
A) $25 billion 
B) $15 billion 
C) $6 billion 
D) $4 billion

Question 18

If investment decreases by $20 billion and the MPC is 0.8,what will the resulting decrease in the consumption component of AD be?

Accepted Answer

A) $16 billion 
B) $4 billion 
C) $100 billion 
D) $80 billion 
A) $16 billion 
B) $4 billion 
C) $100 billion 
D) $80 billion

Question 19

What effect would a $10 billion decrease in government purchases have on AD?

Accepted Answer

A) It would decrease AD by $4 billion if MPC = 0.4. 
B) It would increase AD by $50 billion if MPC = 0.8. 
C) It would increase AD by $20 billion if MPC = 0.5. 
D) It would decrease AD by $30 billion if MPC = 2/3. 
A) It would decrease AD by $4 billion if MPC = 0.4. 
B) It would increase AD by $50 billion if MPC = 0.8. 
C) It would increase AD by $20 billion if MPC = 0.5. 
D) It would decrease AD by $30 billion if MPC = 2/3.

Question 20

If the MPC is 0.8,what increase in government purchases would be called for to achieve a $50 billion increase in AD?

Accepted Answer

A) $10 billion 
B) $40 billion 
C) $50 billion 
D) $62.5 billion 
A) $10 billion 
B) $40 billion 
C) $50 billion 
D) $62.5 billion

If government policy makers are worried about the inflationary potential of the economy,which of the following would NOT be a correct fiscal policy change?

Since 1970,the level of government transfer payments has decreased.

What are the component parts of fiscal policy and how do they affect aggregate demand?

What effect would a combination of an increase in investment and a decrease in imports have on AD?

Running a federal budget deficit would tend to increase real output in the short run,but running persistently large federal budget deficits could result in reducing real output in the long run,other things being equal.

Due to crowding-out effects,other things being equal,in what direction will net exports and investment tend to move?

Describe the difference between a regressive and a progressive tax.

What impact does a smaller crowding-out effect have on the magnitude of a given fiscal policy's effect on AD and net exports?

Explain what effect an expansionary fiscal policy would have on the price level and real GDP starting from full employment equilibrium.

According to the recognition lag,how long might it take Statistics Canada to identify the beginning of an economic downturn?

Robert lost his job during the last recession and his yearly income fell by 15 percent.As a result of the action of automatic stabilizers,his disposable income fell by less than 15 percent.

During a boom expansionary economy,public assistance payments and unemployment compensation payments automatically decrease,while income taxes automatically increase.Which of the following best describes the effect of these changes on aggregate demand?

What effect would an increase in taxes combined with a decrease in government purchases have on AD?

When are budget deficits created?

Under which of the following circumstances does an increase in a government budget deficit have a larger effect on AD?

What type of tax is designed to take a larger percentage from high incomes as compared to lower incomes?

If net exports increase by $10 billion and the MPC to 0.6,what will the resulting increase in the consumption component of AD be?

If investment decreases by $20 billion and the MPC is 0.8,what will the resulting decrease in the consumption component of AD be?

What effect would a $10 billion decrease in government purchases have on AD?

If the MPC is 0.8,what increase in government purchases would be called for to achieve a $50 billion increase in AD?

The Role and Method of Economics

Scarcity, trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Introduction to the Macroeconomy

Measuring Economic Performance

Economic Growth in the Global Economy

Aggregate Demand

Aggregate Supply and Macroeconomic Equilibrium

Money and the Banking System

The Bank of Canada

Monetary Policy

International Trade

International Finance

Filters

Exam 10: Fiscal Policy

If government policy makers are worried about the inflationary potential of the economy,which of the following would NOT be a correct fiscal policy change?

Since 1970,the level of government transfer payments has decreased.

What are the component parts of fiscal policy and how do they affect aggregate demand?

What effect would a combination of an increase in investment and a decrease in imports have on AD?

Running a federal budget deficit would tend to increase real output in the short run,but running persistently large federal budget deficits could result in reducing real output in the long run,other things being equal.

Due to crowding-out effects,other things being equal,in what direction will net exports and investment tend to move?

Describe the difference between a regressive and a progressive tax.

What impact does a smaller crowding-out effect have on the magnitude of a given fiscal policy's effect on AD and net exports?

Explain what effect an expansionary fiscal policy would have on the price level and real GDP starting from full employment equilibrium.

According to the recognition lag,how long might it take Statistics Canada to identify the beginning of an economic downturn?

Robert lost his job during the last recession and his yearly income fell by 15 percent.As a result of the action of automatic stabilizers,his disposable income fell by less than 15 percent.

During a boom expansionary economy,public assistance payments and unemployment compensation payments automatically decrease,while income taxes automatically increase.Which of the following best describes the effect of these changes on aggregate demand?

What effect would an increase in taxes combined with a decrease in government purchases have on AD?

When are budget deficits created?

Under which of the following circumstances does an increase in a government budget deficit have a larger effect on AD?

What type of tax is designed to take a larger percentage from high incomes as compared to lower incomes?

If net exports increase by $10 billion and the MPC to 0.6,what will the resulting increase in the consumption component of AD be?

If investment decreases by $20 billion and the MPC is 0.8,what will the resulting decrease in the consumption component of AD be?

What effect would a $10 billion decrease in government purchases have on AD?

If the MPC is 0.8,what increase in government purchases would be called for to achieve a $50 billion increase in AD?

The Role and Method of Economics

Scarcity, trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Introduction to the Macroeconomy

Measuring Economic Performance

Economic Growth in the Global Economy

Aggregate Demand

Aggregate Supply and Macroeconomic Equilibrium

Money and the Banking System

The Bank of Canada

Monetary Policy

International Trade

International Finance

Filters