Question 1

Forecasts of health care spending in Canada suggest that by 2040, health care spending will increase by

Accepted Answer

A) 3 percent of GDP. 
B) 8 percent of GDP. 
C) 10 percent of GDP. 
D) 13 percent of GDP. 
E) 42 percent of GDP. 
A) 3 percent of GDP. 
B) 8 percent of GDP. 
C) 10 percent of GDP. 
D) 13 percent of GDP. 
E) 42 percent of GDP.

Question 2

Which of the following is an objective of fiscal policy?

Accepted Answer

A) energy independence from Middle East oil 
B) drug plan coverage for all Canadians 
C) discovering a cure for AIDs 
D) high rates of economic growth 
E) winning hockey gold at the winter Olympics 
A) energy independence from Middle East oil 
B) drug plan coverage for all Canadians 
C) discovering a cure for AIDs 
D) high rates of economic growth 
E) winning hockey gold at the winter Olympics

Question 3

A one-time tax rebate, which is not expected to be extended in future years, will

Accepted Answer

A) have a small positive effect on consumption and aggregate demand. 
B) have no effect on consumption and aggregate demand. 
C) have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate. 
D) increase aggregate supply and aggregate demand. 
E) have a significant negative effect on aggregate demand as people will expect taxes to rise in the future. 
A) have a small positive effect on consumption and aggregate demand. 
B) have no effect on consumption and aggregate demand. 
C) have a significant positive effect on consumption and aggregate demand, with aggregate demand growing by a multiple of the tax rebate. 
D) increase aggregate supply and aggregate demand. 
E) have a significant negative effect on aggregate demand as people will expect taxes to rise in the future.

Question 4

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Accepted Answer

The tax rate affects how much of the add

Question 5

Which of the following is the largest category of federal government expenditures?

Accepted Answer

A) health care spending 
B) transfer payments to individuals 
C) interest on government debt 
D) grants to provincial and local governments 
E) military spending 
A) health care spending 
B) transfer payments to individuals 
C) interest on government debt 
D) grants to provincial and local governments 
E) military spending

Question 6

In an open economy, the government purchases multiplier will be

Accepted Answer

A) larger as the marginal propensity to import increases. 
B) smaller as the marginal propensity to import increases. 
C) larger as the marginal propensity to tax increases. 
D) smaller as the marginal propensity to consume increases. 
E) smaller as the marginal tax rate falls. 
A) larger as the marginal propensity to import increases. 
B) smaller as the marginal propensity to import increases. 
C) larger as the marginal propensity to tax increases. 
D) smaller as the marginal propensity to consume increases. 
E) smaller as the marginal tax rate falls.

Question 7

The tax multiplier equals the change in ________ divided by the change in ________.

Accepted Answer

A) taxes; equilibrium real GDP 
B) equilibrium real GDP; taxes 
C) taxes; consumption spending 
D) consumption spending; taxes 
E) marginal tax rates; government revenue 
A) taxes; equilibrium real GDP 
B) equilibrium real GDP; taxes 
C) taxes; consumption spending 
D) consumption spending; taxes 
E) marginal tax rates; government revenue

Question 8

Figure 12.8   Alt text for Figure 12.8: In figure 12.8, a graph comparing real GDP and price level.
Long description for Figure 12.8: The x-axis is labelled, real GDP (trillions of 2007 dollars).The y-axis is labelled, price level (CPI).7 lines are shown; SRAS1, SRAS2, AD1, AD without policy, AD with policy, LRAS1, and LRAS2.Line SRAS1 begins in the bottom left corner and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the end of the x-axis.Lines AD without policy, and AD with policy, follow the same slope as line AD1, but are plotted to the right.Line LRAS1 is perpendicular to the x-axis, and begins from the x-axis value 1.70.Line LRAS2 is perpendicular to the x-axis, and begins from the x-axis value 1.75, to the right of line LRAS1.Line LRAS1 intersects lines AD1 and SRAS1 at point A (1.70, 125).Lines AD without policy, and SRAS2 intersect at point B (1.73, 127).Line LRAS2 intersects the lines AD with policy, and SRAS2 at point C (1.75, 130).
-Refer to Figure 12.8.In the graph above, suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the federal government use to move the economy to point C?

Accepted Answer

A) increase government purchases 
B) decrease government purchases 
C) increase income taxes 
D) sell Government of Canada bonds 
E) sell crown corporations 
A) increase government purchases 
B) decrease government purchases 
C) increase income taxes 
D) sell Government of Canada bonds 
E) sell crown corporations

Question 9

________ is/are the largest source of revenue collected by the federal government.

Accepted Answer

A) Corporate income taxes 
B) Personal income taxes 
C) The Goods and Services Tax (GST) 
D) Premiums on employment insurance 
E) Profits from crown corporations 
A) Corporate income taxes 
B) Personal income taxes 
C) The Goods and Services Tax (GST) 
D) Premiums on employment insurance 
E) Profits from crown corporations

Question 10

Expansionary fiscal policy will

Accepted Answer

A) shift the aggregate demand curve to the left. 
B) shift the aggregate demand curve to the right. 
C) not shift the aggregate demand curve. 
D) shift the short-run aggregate supply curve to the left. 
E) make the aggregate demand curve steeper. 
A) shift the aggregate demand curve to the left. 
B) shift the aggregate demand curve to the right. 
C) not shift the aggregate demand curve. 
D) shift the short-run aggregate supply curve to the left. 
E) make the aggregate demand curve steeper.

Question 11

If tax reduction and simplification are effective, then

Accepted Answer

A) real wages will rise as labour supply and demand increase. 
B) saving and investment in new capital will increase. 
C) interest rates will rise in financial markets and demand for financial assets will fall. 
D) fewer new firms will be established, since existing firms will make more profit. 
E) government revenue will increase. 
A) real wages will rise as labour supply and demand increase. 
B) saving and investment in new capital will increase. 
C) interest rates will rise in financial markets and demand for financial assets will fall. 
D) fewer new firms will be established, since existing firms will make more profit. 
E) government revenue will increase.

Question 12

A change in consumption spending caused by income changes is ________ change in spending, and a change in government spending that occurs to improve roads and bridges is ________ change in spending.

Accepted Answer

A) an induced; an autonomous 
B) an expansionary; a contractionary 
C) an autonomous; an induced 
D) a contractionary; an expansionary 
E) a discretionary; an automatic 
A) an induced; an autonomous 
B) an expansionary; a contractionary 
C) an autonomous; an induced 
D) a contractionary; an expansionary 
E) a discretionary; an automatic

Question 13

It is ________ difficult to effectively time fiscal policy than monetary policy because ________.

Accepted Answer

A) more; fiscal policy can be quickly decided and changed 
B) more; fiscal policy takes longer to implement 
C) less; monetary policy takes longer to decide and change 
D) less; monetary policy takes longer to implement 
A) more; fiscal policy can be quickly decided and changed 
B) more; fiscal policy takes longer to implement 
C) less; monetary policy takes longer to decide and change 
D) less; monetary policy takes longer to implement

Question 14

What impact would you expect an increase of $63 billion in federal government spending to have on the economy?

Accepted Answer

A) consumer spending would fall and investment spending would rise. 
B) net exports would rise and consumer spending would rise. 
C) consumer spending would fall and investment spending would fall. 
D) savings would rise and taxation would fall. 
E) consumer spending would rise and potential GDP would rise. 
A) consumer spending would fall and investment spending would rise. 
B) net exports would rise and consumer spending would rise. 
C) consumer spending would fall and investment spending would fall. 
D) savings would rise and taxation would fall. 
E) consumer spending would rise and potential GDP would rise.

Question 15

Which of the following is a reason why we should consider the federal national debt a problem?

Accepted Answer

A) The federal government is in danger of defaulting on its debt. 
B) If the debt drives up interest rates, crowding out will occur. 
C) If the debt was incurred to finance improvements in infrastructure, crowding out will occur. 
D) If the debt was incurred to finance research and development, crowding out will occur. 
E) If the debt increases private consumption less investment will occur. 
A) The federal government is in danger of defaulting on its debt. 
B) If the debt drives up interest rates, crowding out will occur. 
C) If the debt was incurred to finance improvements in infrastructure, crowding out will occur. 
D) If the debt was incurred to finance research and development, crowding out will occur. 
E) If the debt increases private consumption less investment will occur.

Question 16

Suppose the federal budget deficit for the year was $10 billion and the economy was in a recession.If the economy had been at potential GDP, it is estimated that tax revenues would have been $6 billion higher and government spending on transfer payments $5 billion lower.Using these estimates, the cyclically adjusted budget

Accepted Answer

A) deficit was $21 billion. 
B) deficit was $11 billion. 
C) surplus was $1 billion. 
D) surplus was $11 billion. 
E) deficit was $1 billion. 
A) deficit was $21 billion. 
B) deficit was $11 billion. 
C) surplus was $1 billion. 
D) surplus was $11 billion. 
E) deficit was $1 billion.

Question 17

Assume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.8.What is the government spending multiplier?

Accepted Answer

A) 10 
B) 5 
C) 4 
D) 3 
E) 1 
A) 10 
B) 5 
C) 4 
D) 3 
E) 1

Question 18

Figure 12.5   Alt text for Figure 12.5: In figure 12.5, a dynamic model of AD-AS.
Long description for Figure 12.5: The x-axis is labelled, real GDP (trillions of 2007 dollars).The y-axis is labelled, price level (CPI).6 lines are shown; SRAS1, SRAS2, AD1, AD2, LRAS1, and LRAS2.Line SRAS1 begins in the bottom left corner and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as line AD1, but is plotted to the right.Line LRAS1 is perpendicular to the x-axis, and begins from the x-axis value 1.7.Line LRAS2 is perpendicular to the x-axis, and begins from x-axis value 1.9.Line LRAS1 intersects lines AD1 and SRAS1 at point A (1.7, 100).Lines AD2 and SRAS2 intersect at point B (1.86, 102).Points A and B are connected to their respective coordinates on the x and y-axes with dotted lines.Line LRAS2 intersects the lines SRAS1 and SRAS2 near the top end of these lines.Line LRAS2 intersects the lines AD1 and AD2 near the bottom end of these lines.
-Refer to Figure 12.5.In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the federal government would most likely

Accepted Answer

A) decrease government spending. 
B) increase government spending. 
C) increase oil prices. 
D) increase taxes. 
E) lower interest rates. 
A) decrease government spending. 
B) increase government spending. 
C) increase oil prices. 
D) increase taxes. 
E) lower interest rates.

Question 19

Which of the following is not an option for provincial governments facing rising health care costs?

Accepted Answer

A) printing more money 
B) raising income and sales taxes 
C) reducing funding to education and other programs 
D) reducing the level of health care services provided 
A) printing more money 
B) raising income and sales taxes 
C) reducing funding to education and other programs 
D) reducing the level of health care services provided

Question 20

Which of the following is an example of discretionary fiscal policy?

Accepted Answer

A) an increase in employment insurance payments during a recession 
B) an increase in income tax receipts with rising income during an expansion 
C) tax cuts passed by the government to combat a recession 
D) a decrease in employment insurance payments during an expansion or boom 
E) the replacement of the sewer system after a major sewerline break 
A) an increase in employment insurance payments during a recession 
B) an increase in income tax receipts with rising income during an expansion 
C) tax cuts passed by the government to combat a recession 
D) a decrease in employment insurance payments during an expansion or boom 
E) the replacement of the sewer system after a major sewerline break

Forecasts of health care spending in Canada suggest that by 2040, health care spending will increase by

Which of the following is an objective of fiscal policy?

A one-time tax rebate, which is not expected to be extended in future years, will

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Which of the following is the largest category of federal government expenditures?

In an open economy, the government purchases multiplier will be

The tax multiplier equals the change in divided by the change in .

________ is/are the largest source of revenue collected by the federal government.

Expansionary fiscal policy will

If tax reduction and simplification are effective, then

A change in consumption spending caused by income changes is change in spending, and a change in government spending that occurs to improve roads and bridges is change in spending.

It is difficult to effectively time fiscal policy than monetary policy because .

What impact would you expect an increase of $63 billion in federal government spending to have on the economy?

Which of the following is a reason why we should consider the federal national debt a problem?

Assume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.8.What is the government spending multiplier?

Which of the following is not an option for provincial governments facing rising health care costs?

Which of the following is an example of discretionary fiscal policy?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Bank of Canada

Monetary Policy

Inflation, Unemployment, and Bank of Canada Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 12: Fiscal Policy

Forecasts of health care spending in Canada suggest that by 2040, health care spending will increase by

Which of the following is an objective of fiscal policy?

A one-time tax rebate, which is not expected to be extended in future years, will

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Which of the following is the largest category of federal government expenditures?

In an open economy, the government purchases multiplier will be

The tax multiplier equals the change in ________ divided by the change in ________.

________ is/are the largest source of revenue collected by the federal government.

Expansionary fiscal policy will

If tax reduction and simplification are effective, then

A change in consumption spending caused by income changes is ________ change in spending, and a change in government spending that occurs to improve roads and bridges is ________ change in spending.

It is ________ difficult to effectively time fiscal policy than monetary policy because ________.

What impact would you expect an increase of $63 billion in federal government spending to have on the economy?

Which of the following is a reason why we should consider the federal national debt a problem?

Assume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.8.What is the government spending multiplier?

Which of the following is not an option for provincial governments facing rising health care costs?

Which of the following is an example of discretionary fiscal policy?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Bank of Canada

Monetary Policy

Inflation, Unemployment, and Bank of Canada Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

The tax multiplier equals the change in divided by the change in .

A change in consumption spending caused by income changes is change in spending, and a change in government spending that occurs to improve roads and bridges is change in spending.

It is difficult to effectively time fiscal policy than monetary policy because .