Question 1

In the short run,what impact can an expansionary fiscal policy have on the price level?

Accepted Answer

A) It can cause a rise in the price level. 
B) It can cause a rise or a reduction in the price level, depending on the state of the economy. 
C) It can cause the price level to remain constant. . 
D) It can cause a reduction in the price level. 
A) It can cause a rise in the price level. 
B) It can cause a rise or a reduction in the price level, depending on the state of the economy. 
C) It can cause the price level to remain constant. . 
D) It can cause a reduction in the price level.

Question 2

A policy of a tax cut combined with increases in government purchases would shift the aggregate demand curve to the left.

Accepted Answer

A) True 
 B)False

Question 3

When the crowding-out effect of an increase in government purchases is included in the analysis,what is the effect on AD?

Accepted Answer

A) AD shifts right, but by less than the simple multiplier analysis would imply. 
B) AD doesn't change. 
C) AD shifts left. 
D) AD shifts right, but by more than the simple multiplier analysis would imply. 
A) AD shifts right, but by less than the simple multiplier analysis would imply. 
B) AD doesn't change. 
C) AD shifts left. 
D) AD shifts right, but by more than the simple multiplier analysis would imply.

Question 4

What will be the impact on AD and the budget deficit if there is initially a federal budget deficit and government purchases and taxes both rise?

Accepted Answer

A) AD increases and the budget deficit decreases. 
B) There is an indeterminate effect on both AD and the budget deficit. 
C) AD decreases and the budget deficit increases. 
D) AD increases and the budget deficit increases. 
A) AD increases and the budget deficit decreases. 
B) There is an indeterminate effect on both AD and the budget deficit. 
C) AD decreases and the budget deficit increases. 
D) AD increases and the budget deficit increases.

Question 5

During a recession,total welfare payments and employment insurance payments automatically increase,while income taxes automatically decrease.Which of the following best describes the effect of these changes on aggregate demand?

Accepted Answer

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

Question 6

According to the crowding-out effect,what will occur if the federal government borrows to finance deficit spending?

Accepted Answer

A) The supply of loanable funds will increase, driving interest rates up. 
B) The demand for loanable funds will increase, driving interest rates up. 
C) The supply of loanable funds will decrease, driving interest rates down. 
D) The demand for loanable funds will decrease, driving interest rates down. 
A) The supply of loanable funds will increase, driving interest rates up. 
B) The demand for loanable funds will increase, driving interest rates up. 
C) The supply of loanable funds will decrease, driving interest rates down. 
D) The demand for loanable funds will decrease, driving interest rates down.

Question 7

What will a decision to run a lower budget deficit (or larger budget surplus)lead to?

Accepted Answer

A) higher output in the short run and higher growth in the long run 
B) lower output in the short run and higher growth in the long run 
C) lower output in the short run and lower growth in the long run 
D) higher output in the short run and lower growth in the long run 
A) higher output in the short run and higher growth in the long run 
B) lower output in the short run and higher growth in the long run 
C) lower output in the short run and lower growth in the long run 
D) higher output in the short run and lower growth in the long run

Question 8

What will be the impact on AD and budget deficit if there is initially a federal budget deficit,and government purchases and transfer payments both rise?

Accepted Answer

A) AD increases and the budget deficit decreases. 
B) AD decreases and the budget deficit decreases. 
C) AD decreases and the budget deficit increases. 
D) AD increases and the budget deficit increases. 
A) AD increases and the budget deficit decreases. 
B) AD decreases and the budget deficit decreases. 
C) AD decreases and the budget deficit increases. 
D) AD increases and the budget deficit increases.

Question 9

What will be the impact on AD and the budget deficit if there is initially a federal budget deficit and taxes rise,while transfer payments fall?

Accepted Answer

A) AD increases and the budget deficit increases. 
B) AD decreases and the budget deficit increases. 
C) AD increases and the budget deficit decreases. 
D) AD decreases and the budget deficit decreases. 
A) AD increases and the budget deficit increases. 
B) AD decreases and the budget deficit increases. 
C) AD increases and the budget deficit decreases. 
D) AD decreases and the budget deficit decreases.

Question 10

Which of the following statements about automatic stabilizers in Canada is the most accurate?

Accepted Answer

A) They are the responsibility of the provinces since they, unlike the federal government, do not face lag problems. 
B) They are controlled by the Bank of Canada to help manage the business cycle. 
C) They are able to completely eliminate all the lag problems associated with fiscal policy. 
D) They are changes in government transfer payments and tax revenues that vary automatically and inversely to business cycle changes. 
A) They are the responsibility of the provinces since they, unlike the federal government, do not face lag problems. 
B) They are controlled by the Bank of Canada to help manage the business cycle. 
C) They are able to completely eliminate all the lag problems associated with fiscal policy. 
D) They are changes in government transfer payments and tax revenues that vary automatically and inversely to business cycle changes.

Question 11

For which group of citizens is a sales or excise tax often considered to be unfair?

Accepted Answer

A) No one in particular, because it is a proportional tax that treats everyone the same. 
B) Upper-income people, because they have more income. 
C) Lower-income groups, who pay a greater percentage of their income toward the tax than do the wealthy. 
D) The middle class, because they comprise the largest demographic group in society. 
A) No one in particular, because it is a proportional tax that treats everyone the same. 
B) Upper-income people, because they have more income. 
C) Lower-income groups, who pay a greater percentage of their income toward the tax than do the wealthy. 
D) The middle class, because they comprise the largest demographic group in society.

Question 12

What is the largest single source of revenue for the federal government?

Accepted Answer

A) consumption taxes 
B) social security contributions 
C) income taxes 
D) tariff revenues 
A) consumption taxes 
B) social security contributions 
C) income taxes 
D) tariff revenues

Question 13

In a short run,which of the following would a decrease in transfer payments NOT do?

Accepted Answer

A) reduce unemployment 
B) decrease any budget deficit or increase any budget surplus 
C) reduce the price level 
D) reduce consumption purchases 
A) reduce unemployment 
B) decrease any budget deficit or increase any budget surplus 
C) reduce the price level 
D) reduce consumption purchases

Question 14

Suppose the federal government buys $10 million worth of automobiles.If the MPC is 0.80,what will be the impact on aggregate demand,other things being equal?

Accepted Answer

A) Aggregate demand will increase $8 million. 
B) Aggregate demand will increase $10 million. 
C) Aggregate demand will increase $12.5 million. 
D) Aggregate demand will increase $50 million. 
A) Aggregate demand will increase $8 million. 
B) Aggregate demand will increase $10 million. 
C) Aggregate demand will increase $12.5 million. 
D) Aggregate demand will increase $50 million.

Question 15

What type of taxation is the gasoline tax an example of?

Accepted Answer

A) progressive taxation 
B) regressive taxation 
C) necessary taxation 
D) neutral taxation 
A) progressive taxation 
B) regressive taxation 
C) necessary taxation 
D) neutral taxation

Question 16

What does the impact lag refer to?

Accepted Answer

A) the time required for the Bank of Canada to formally announce the impact of an economic downturn 
B) the time required for changes in fiscal policy to affect the real economy 
C) the time required for politicians to realize that the economy is slowing and to react 
D) the time required for a downturn to have an effect on unemployment 
A) the time required for the Bank of Canada to formally announce the impact of an economic downturn 
B) the time required for changes in fiscal policy to affect the real economy 
C) the time required for politicians to realize that the economy is slowing and to react 
D) the time required for a downturn to have an effect on unemployment

Question 17

How do income and/or expenditures explain the multiplier effect?

Accepted Answer

A) the fact that income by one person are expenditures to another 
B) the fact that income by one person is income to another 
C) the fact that expenditures by one person are expenditures to another 
D) the fact that expenditures by one person is income to another 
A) the fact that income by one person are expenditures to another 
B) the fact that income by one person is income to another 
C) the fact that expenditures by one person are expenditures to another 
D) the fact that expenditures by one person is income to another

Question 18

What does contractionary fiscal policy consist of?

Accepted Answer

A) increased government purchases and decreased taxes 
B) decreased government purchases and increased taxes 
C) decreased government purchases and decreased taxes 
D) increased government purchases and increased taxes 
A) increased government purchases and decreased taxes 
B) decreased government purchases and increased taxes 
C) decreased government purchases and decreased taxes 
D) increased government purchases and increased taxes

Question 19

What action might the government take if it wanted to offset the effect of a fall in consumer confidence on AD?

Accepted Answer

A) decrease the budget deficit 
B) decrease transfer payments 
C) decrease government purchases 
D) decrease taxes 
A) decrease the budget deficit 
B) decrease transfer payments 
C) decrease government purchases 
D) decrease taxes

Question 20

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

Accepted Answer

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

In the short run,what impact can an expansionary fiscal policy have on the price level?

A policy of a tax cut combined with increases in government purchases would shift the aggregate demand curve to the left.

When the crowding-out effect of an increase in government purchases is included in the analysis,what is the effect on AD?

What will be the impact on AD and the budget deficit if there is initially a federal budget deficit and government purchases and taxes both rise?

During a recession,total welfare payments and employment insurance payments automatically increase,while income taxes automatically decrease.Which of the following best describes the effect of these changes on aggregate demand?

According to the crowding-out effect,what will occur if the federal government borrows to finance deficit spending?

What will a decision to run a lower budget deficit (or larger budget surplus)lead to?

What will be the impact on AD and budget deficit if there is initially a federal budget deficit,and government purchases and transfer payments both rise?

What will be the impact on AD and the budget deficit if there is initially a federal budget deficit and taxes rise,while transfer payments fall?

Which of the following statements about automatic stabilizers in Canada is the most accurate?

For which group of citizens is a sales or excise tax often considered to be unfair?

What is the largest single source of revenue for the federal government?

In a short run,which of the following would a decrease in transfer payments NOT do?

Suppose the federal government buys $10 million worth of automobiles.If the MPC is 0.80,what will be the impact on aggregate demand,other things being equal?

What type of taxation is the gasoline tax an example of?

What does the impact lag refer to?

How do income and/or expenditures explain the multiplier effect?

What does contractionary fiscal policy consist of?

What action might the government take if it wanted to offset the effect of a fall in consumer confidence on AD?

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

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

In the short run,what impact can an expansionary fiscal policy have on the price level?

A policy of a tax cut combined with increases in government purchases would shift the aggregate demand curve to the left.

When the crowding-out effect of an increase in government purchases is included in the analysis,what is the effect on AD?

What will be the impact on AD and the budget deficit if there is initially a federal budget deficit and government purchases and taxes both rise?

During a recession,total welfare payments and employment insurance payments automatically increase,while income taxes automatically decrease.Which of the following best describes the effect of these changes on aggregate demand?

According to the crowding-out effect,what will occur if the federal government borrows to finance deficit spending?

What will a decision to run a lower budget deficit (or larger budget surplus)lead to?

What will be the impact on AD and budget deficit if there is initially a federal budget deficit,and government purchases and transfer payments both rise?

What will be the impact on AD and the budget deficit if there is initially a federal budget deficit and taxes rise,while transfer payments fall?

Which of the following statements about automatic stabilizers in Canada is the most accurate?

For which group of citizens is a sales or excise tax often considered to be unfair?

What is the largest single source of revenue for the federal government?

In a short run,which of the following would a decrease in transfer payments NOT do?

Suppose the federal government buys $10 million worth of automobiles.If the MPC is 0.80,what will be the impact on aggregate demand,other things being equal?

What type of taxation is the gasoline tax an example of?

What does the impact lag refer to?

How do income and/or expenditures explain the multiplier effect?

What does contractionary fiscal policy consist of?

What action might the government take if it wanted to offset the effect of a fall in consumer confidence on AD?

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

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