Question 1

The Bank of Canada plays a larger role than Parliament and the Prime Minister in stabilizing the economy because

Accepted Answer

A) the Bank of Canada can more quickly change monetary policy than the Parliament can change fiscal policy. 
B) the Bank of Canada can immediately recognize when real GDP is below or above potential GDP. 
C) changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes. 
D) changes in interest rates have their full effect on the economy in a short period of time, whereas changes in government spending and taxes have their full effect over a long period of time. 
E) the Bank of Canada has more authority than parliament. 
A) the Bank of Canada can more quickly change monetary policy than the Parliament can change fiscal policy. 
B) the Bank of Canada can immediately recognize when real GDP is below or above potential GDP. 
C) changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes. 
D) changes in interest rates have their full effect on the economy in a short period of time, whereas changes in government spending and taxes have their full effect over a long period of time. 
E) the Bank of Canada has more authority than parliament.

Question 2

If Parliament passed a one-time tax cut in order to stimulate the economy in 2015, and tax rate levels returned to their pre-2015 level in 2016, how should this tax cut affect the economy?

Accepted Answer

A) Households on average would save an amount greater than the tax cut. 
B) The tax cut would stimulate spending by households. 
C) The tax cut would shift the aggregate demand curve to the right. 
D) The tax cut would raise the price level in 2015. 
E) The tax cut would reduce investment by firms in 2015. 
A) Households on average would save an amount greater than the tax cut. 
B) The tax cut would stimulate spending by households. 
C) The tax cut would shift the aggregate demand curve to the right. 
D) The tax cut would raise the price level in 2015. 
E) The tax cut would reduce investment by firms in 2015.

Question 3

Active changes in tax and spending by government intended to smooth out the business cycle are called ________, and changes in taxes and spending that occur passively over the business cycle are called ________.

Accepted Answer

A) automatic stabilizers; discretionary fiscal policy 
B) discretionary fiscal policy; automatic stabilizers 
C) automatic stabilizers; monetary policy 
D) discretionary fiscal policy; conscious fiscal policy 
E) active monetary policy; passive monetary policy 
A) automatic stabilizers; discretionary fiscal policy 
B) discretionary fiscal policy; automatic stabilizers 
C) automatic stabilizers; monetary policy 
D) discretionary fiscal policy; conscious fiscal policy 
E) active monetary policy; passive monetary policy

Question 4

Automatic stabilizers refer to

Accepted Answer

A) the money supply and interest rates that automatically increase or decrease along with the business cycle. 
B) government spending and taxes that automatically increase or decrease along with the business cycle. 
C) changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 
D) changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
E) restrictions on the size of government budget deficit designed to ensure the long-term fiscal stability of the government. 
A) the money supply and interest rates that automatically increase or decrease along with the business cycle. 
B) government spending and taxes that automatically increase or decrease along with the business cycle. 
C) changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 
D) changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives. 
E) restrictions on the size of government budget deficit designed to ensure the long-term fiscal stability of the government.

Question 5

Why will there be less crowding out of private spending by government spending the less sensitive consumption, investment, and net exports are to changes in interest rates?

Accepted Answer

Crowding out occurs when the increase in

Question 6

Suppose that the federal government allocates $5 billion to an "energy-efficient appliance rebate" program.It also raises taxes by $5 billion to keep the deficit from growing.If the marginal propensity to consume is 0.8, what is the effect on equilibrium GDP?

Accepted Answer

A) GDP does not change. 
B) GDP increases by $25 billion. 
C) GDP increases by $4 billion. 
D) GDP increases by $5 billion. 
E) GDP increases by $2.5 billion. 
A) GDP does not change. 
B) GDP increases by $25 billion. 
C) GDP increases by $4 billion. 
D) GDP increases by $5 billion. 
E) GDP increases by $2.5 billion.

Question 7

An equal increase in government purchases and taxes will cause

Accepted Answer

A) an increase in real GDP. 
B) no change in real GDP. 
C) an increase in the budget surplus. 
D) a reduction in cyclically adjusted budget surplus. 
E) a reduction in interest rates. 
A) an increase in real GDP. 
B) no change in real GDP. 
C) an increase in the budget surplus. 
D) a reduction in cyclically adjusted budget surplus. 
E) a reduction in interest rates.

Question 8

A(n)________ in private expenditures as a result of a(n)________ in government purchases is called crowding out.

Accepted Answer

A) increase; decrease 
B) decrease; decrease 
C) decrease; increase 
D) increase; increase 
A) increase; decrease 
B) decrease; decrease 
C) decrease; increase 
D) increase; increase

Question 9

The impact of crowding out may be the least

Accepted Answer

A) during a deep recession. 
B) when real GDP is above but close to potential GDP. 
C) during an expansion. 
D) when real GDP is below but close to potential GDP. 
E) when technological progress is slow. 
A) during a deep recession. 
B) when real GDP is above but close to potential GDP. 
C) during an expansion. 
D) when real GDP is below but close to potential GDP. 
E) when technological progress is slow.

Question 10

An increase in government purchases of $20 billion will shift the aggregate demand curve to the right by

Accepted Answer

A) $20 billion. 
B) less than $20 billion. 
C) more than $20 billion. 
D) None of the above is correct.This policy shifts the long-run aggregate supply curve. 
A) $20 billion. 
B) less than $20 billion. 
C) more than $20 billion. 
D) None of the above is correct.This policy shifts the long-run aggregate supply curve.

Question 11

What is fiscal policy and who is responsible for fiscal policy?

Accepted Answer

Fiscal policy refers to change

Question 12

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Accepted Answer

A) True 
 B)False

Question 13

What is "austerity" and why would the European Union and other lenders to Greece insist on austerity knowing that such programs can make recessions worse?

Accepted Answer

"Austerity" is the name given to the pla

Question 14

Suppose that the federal budget is balanced when GDP is at potential GDP.If equilibrium GDP falls below potential,

Accepted Answer

A) this will result in a current budget deficit. 
B) the cyclically adjusted budget will be balanced. 
C) government transfer payments will be rising and tax receipts will be falling. 
D) government receipts from social security premiums will be falling. 
E) All of the above are correct. 
A) this will result in a current budget deficit. 
B) the cyclically adjusted budget will be balanced. 
C) government transfer payments will be rising and tax receipts will be falling. 
D) government receipts from social security premiums will be falling. 
E) All of the above are correct.

Question 15

The larger the marginal propensity to import, the smaller the government purchases multiplier.

Accepted Answer

A) True 
 B)False

Question 16

An increase in government purchases will increase aggregate demand because

Accepted Answer

A) government expenditures are a component of aggregate demand. 
B) consumption expenditures are a component of aggregate demand. 
C) the decline in the price level will increase demand. 
D) the decline in the interest rate will increase demand. 
E) increases in government purchases cause an increase in aggregate supply. 
A) government expenditures are a component of aggregate demand. 
B) consumption expenditures are a component of aggregate demand. 
C) the decline in the price level will increase demand. 
D) the decline in the interest rate will increase demand. 
E) increases in government purchases cause an increase in aggregate supply.

Question 17

The cyclically adjusted budget deficit calculates the budget surplus or deficit at

Accepted Answer

A) real GDP. 
B) potential GDP. 
C) nominal GDP. 
D) average GDP. 
E) maximum GDP. 
A) real GDP. 
B) potential GDP. 
C) nominal GDP. 
D) average GDP. 
E) maximum GDP.

Question 18

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

Accepted Answer

A) True 
 B)False

Question 19

If the economy is growing beyond potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply?

Accepted Answer

A) an increase in the money supply and a decrease in interest rates 
B) an increase in government purchases 
C) an increase in oil prices 
D) an increase in taxes 
E) an increase transfers people 
A) an increase in the money supply and a decrease in interest rates 
B) an increase in government purchases 
C) an increase in oil prices 
D) an increase in taxes 
E) an increase transfers people

Question 20

Figure 12.12   Alt text for Figure 12.12: In figure 12.12, a graph depicting the changes in aggregate demand.
Long description for Figure 12.12: The x-axis is labelled, real GDP (trillions of 2007 dollars), and the y-axis is labelled, price level (CPI).2 lines are shown; AD1 and AD2.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.Point A is plotted approximately 3 quarters of the way along line AD1.Point B is plotted less than half way along line AD2.Points A and B are connected to the y-axis with a line, and the area between lines AD1 and AD2 is indicated by a right pointing arrow.
-Refer to Figure 12.12.If government purchases increase by $10 billion and lead to an ultimate increase in aggregate demand as shown in the graph above, the difference in real GDP between point A and point B will be

Accepted Answer

A) $10 billion. 
B) less than $10 billion. 
C) more than $10 billion. 
D) There is insufficient information given here to draw a conclusion. 
A) $10 billion. 
B) less than $10 billion. 
C) more than $10 billion. 
D) There is insufficient information given here to draw a conclusion.

The Bank of Canada plays a larger role than Parliament and the Prime Minister in stabilizing the economy because

If Parliament passed a one-time tax cut in order to stimulate the economy in 2015, and tax rate levels returned to their pre-2015 level in 2016, how should this tax cut affect the economy?

Active changes in tax and spending by government intended to smooth out the business cycle are called , and changes in taxes and spending that occur passively over the business cycle are called .

Automatic stabilizers refer to

Why will there be less crowding out of private spending by government spending the less sensitive consumption, investment, and net exports are to changes in interest rates?

Suppose that the federal government allocates $5 billion to an "energy-efficient appliance rebate" program.It also raises taxes by $5 billion to keep the deficit from growing.If the marginal propensity to consume is 0.8, what is the effect on equilibrium GDP?

An equal increase in government purchases and taxes will cause

A(n) in private expenditures as a result of a(n) in government purchases is called crowding out.

The impact of crowding out may be the least

An increase in government purchases of $20 billion will shift the aggregate demand curve to the right by

What is fiscal policy and who is responsible for fiscal policy?

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

What is "austerity" and why would the European Union and other lenders to Greece insist on austerity knowing that such programs can make recessions worse?

Suppose that the federal budget is balanced when GDP is at potential GDP.If equilibrium GDP falls below potential,

The larger the marginal propensity to import, the smaller the government purchases multiplier.

An increase in government purchases will increase aggregate demand because

The cyclically adjusted budget deficit calculates the budget surplus or deficit at

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

If the economy is growing beyond potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply?

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

The Bank of Canada plays a larger role than Parliament and the Prime Minister in stabilizing the economy because

If Parliament passed a one-time tax cut in order to stimulate the economy in 2015, and tax rate levels returned to their pre-2015 level in 2016, how should this tax cut affect the economy?

Active changes in tax and spending by government intended to smooth out the business cycle are called ________, and changes in taxes and spending that occur passively over the business cycle are called ________.

Automatic stabilizers refer to

Why will there be less crowding out of private spending by government spending the less sensitive consumption, investment, and net exports are to changes in interest rates?

Suppose that the federal government allocates $5 billion to an "energy-efficient appliance rebate" program.It also raises taxes by $5 billion to keep the deficit from growing.If the marginal propensity to consume is 0.8, what is the effect on equilibrium GDP?

An equal increase in government purchases and taxes will cause

A(n)________ in private expenditures as a result of a(n)________ in government purchases is called crowding out.

The impact of crowding out may be the least

An increase in government purchases of $20 billion will shift the aggregate demand curve to the right by

What is fiscal policy and who is responsible for fiscal policy?

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

What is "austerity" and why would the European Union and other lenders to Greece insist on austerity knowing that such programs can make recessions worse?

Suppose that the federal budget is balanced when GDP is at potential GDP.If equilibrium GDP falls below potential,

The larger the marginal propensity to import, the smaller the government purchases multiplier.

An increase in government purchases will increase aggregate demand because

The cyclically adjusted budget deficit calculates the budget surplus or deficit at

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

If the economy is growing beyond potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply?

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

Active changes in tax and spending by government intended to smooth out the business cycle are called , and changes in taxes and spending that occur passively over the business cycle are called .

A(n) in private expenditures as a result of a(n) in government purchases is called crowding out.