Question 1

By decreasing government spending and aggregate demand,the policy ________ the price level and ________ equilibrium real GDP,ceteris paribus.

Accepted Answer

A)  decreases; increases 
B)  increases; decreases 
C)  increases; increases 
D)  decreases; decreases 
A)  decreases; increases 
B)  increases; decreases 
C)  increases; increases 
D)  decreases; decreases D

Question 2

An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to increase interest rates.

Accepted Answer

A) True 
 B)False  False

Question 3

Outline the differences between the government 'purchases multiplier' and the 'tax multiplier'.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

First,changes in government purchases affect GDP in the opposite direction as changes in taxes.As a result,the government purchases multiplier is positive,and the tax multiplier is negative.Secondly,the government purchases multiplier is larger in magnitude than the tax multiplier.This means that a dollar change in government purchases will have a larger effect on GDP as compared to a dollar change in the taxes.

Question 4

The ________ the tax wedge,the smaller the difference between pre-tax and post-tax returns for an economic activity,the ________ of that activity will occur.

Accepted Answer

A)  smaller; more 
B)  smaller; less 
C)  larger; more 
D)  larger; less 
A)  smaller; more 
B)  smaller; less 
C)  larger; more 
D)  larger; less

Question 5

Borrowing to pay for long-term capital expenditures makes sense as the benefits are received _________.

Accepted Answer

A)  in the current year so the burden of paying for them should be spread over many years 
B)  over many years so the burden of paying for them should be spread over many years 
C)  in the current year so the burden of paying for them should be paid in the current year 
D)  over many years so the burden of paying for them should be paid in the current year 
A)  in the current year so the burden of paying for them should be spread over many years 
B)  over many years so the burden of paying for them should be spread over many years 
C)  in the current year so the burden of paying for them should be paid in the current year 
D)  over many years so the burden of paying for them should be paid in the current year

Question 6

If the economy were in a recession,we would expect government expenditure to be _________.

Accepted Answer

A)  high and tax revenues to be high, probably leading to a budget deficit 
B)  high and tax revenues to be low, probably leading to a budget deficit 
C)  low and tax revenues to be low, probably leading to a budget surplus 
D)  high and tax revenues to be low, probably leading to a budget surplus 
A)  high and tax revenues to be high, probably leading to a budget deficit 
B)  high and tax revenues to be low, probably leading to a budget deficit 
C)  low and tax revenues to be low, probably leading to a budget surplus 
D)  high and tax revenues to be low, probably leading to a budget surplus

Question 7

A deliberate policy change in taxes and government spending to influence the level of aggregate demand is called __________.

Accepted Answer

A)  an automatic stabiliser 
B)  discretionary fiscal policy 
C)  a fiscal deficit 
D)  a fiscal surplus 
A)  an automatic stabiliser 
B)  discretionary fiscal policy 
C)  a fiscal deficit 
D)  a fiscal surplus

Question 8

A change in tax rates __________.

Accepted Answer

A)  has a less complicated effect on GDP than does a tax cut of a fixed amount 
B)  has a larger multiplier effect the smaller the tax rate 
C)  will not affect disposable income 
D)  will not affect the size of the multiplier 
A)  has a less complicated effect on GDP than does a tax cut of a fixed amount 
B)  has a larger multiplier effect the smaller the tax rate 
C)  will not affect disposable income 
D)  will not affect the size of the multiplier

Question 9

Identify each of the following as (i)part of an expansionary fiscal policy; (ii)part of a contractionary fiscal policy; or (iii)not part of fiscal policy.
a.The personal income tax rate is lowered.
b.The government increases spending on defence due to a change in spending priorities.
c.The company income tax rate is lowered.
d.The State of New South Wales builds a new tollway in an attempt to expand employment and ease traffic congestion.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

a.This is expansionary fiscal policy.
b.

Question 10

Increases in government spending will lower the long-term growth rate of GDP if it lowers ________ and the government purchases ________ goods and not ________ goods.

Accepted Answer

A)  net export spending; investment; consumption 
B)  consumption; investment; consumption 
C)  net export spending; consumption; investment 
D)  investment; consumption; investment 
A)  net export spending; investment; consumption 
B)  consumption; investment; consumption 
C)  net export spending; consumption; investment 
D)  investment; consumption; investment

Question 11

Consider the hypothetical information in the following table for potential GDP,real GDP,and the price level in 2016 and in 2017 if the government does not use fiscal policy. $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Potential GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2016 & \$ 1.5 \text { trillion } & \$ 1.5 \text { trillion } & 150 \
\hline 2017 & \$ 1.7 \text { trillion } & \$ 1.8 \text { trillion } & 154 \
\hline
\end{array}$$ If the government wants control inflation while keeping real GDP at its potential level in 2017,it should ________.

Accepted Answer

A)  increase income taxes 
B)  increase government purchases 
C)  decrease interest rates 
D)  increase interest rates 
A)  increase income taxes 
B)  increase government purchases 
C)  decrease interest rates 
D)  increase interest rates

Question 12

Refer to Figure 18.6 for the following questions.
Figure 18.6  
-Suppose the federal government reduces income taxes.Assume that the movement from A to B in Figure 18.6 represents normal growth in the economy before the tax change.Also assume that aggregate demand does not change.If the tax change is effective and labour supply and savings increase because of the tax change,then the tax change will __________.

Accepted Answer

A)  shift LRAS2 to the right 
B)  decrease output to less than Y2 
C)  not change the price level 
D)  decrease the price level to less than P1, but more than P2 
A)  shift LRAS2 to the right 
B)  decrease output to less than Y2 
C)  not change the price level 
D)  decrease the price level to less than P1, but more than P2

Question 13

Refer to Figure 18.2 for the following question.
Figure 18.2  
-If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to _________.

Accepted Answer

A)  increase taxes 
B)  increase government spending 
C)  use expansionary fiscal policy 
D)  increase interest rates 
A)  increase taxes 
B)  increase government spending 
C)  use expansionary fiscal policy 
D)  increase interest rates

Question 14

Induced taxes and transfer payments reduce the multiplier effects.

Accepted Answer

A) True 
 B)False

Question 15

Crowding out results in _________.

Accepted Answer

A)  higher interest rates, a lower exchange rate, and lower net exports. 
B)  higher interest rates, a higher exchange rate, and lower net exports. 
C)  lower interest rates, a lower exchange rate, and lower net exports. 
D)  lower interest rates, a higher exchange rate, and lower net exports. 
A)  higher interest rates, a lower exchange rate, and lower net exports. 
B)  higher interest rates, a higher exchange rate, and lower net exports. 
C)  lower interest rates, a lower exchange rate, and lower net exports. 
D)  lower interest rates, a higher exchange rate, and lower net exports.

Question 16

In 2015/2016,the largest share of Australian federal government welfare payments went to __________.

Accepted Answer

A)  unemployment benefits 
B)  age pensions and services to the aged 
C)  disability pensions and expenditures 
D)  payments to families with children 
A)  unemployment benefits 
B)  age pensions and services to the aged 
C)  disability pensions and expenditures 
D)  payments to families with children

Question 17

Suppose the economy is in the state described by the following table.
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Potential GDP } & \text { Real GDP } & \text { Price Level } \
\hline 1 & \$ 1100 \text { billion } & \$ 1100 \text { billion } & 100 \
\hline 2 & \$ 1150 \text { billion } & \$ 1170 \text { billion } & 109 \
\hline
\end{array}$$ What problem will occur in the economy if no policy is pursued? What fiscal policy tools could be used to combat the problem? Draw a dynamic aggregate demand and supply graph to illustrate the appropriate fiscal policy to use in this situation.   _____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The economy begins in equilibrium at poi

Question 18

Refer to Figure 18.1 for the following questions.
Figure 18.1  
-In Figure 18.1,if fiscal policy successfully moves the economy from point B to equilibrium at potential GDP,this will _______.

Accepted Answer

A)  increase the price level from P2 to P3 
B)  increase the price level from P1 to P2 
C)  decrease the price level from P3 to P2 
D)  decrease the price level from P2 to P1 
A)  increase the price level from P2 to P3 
B)  increase the price level from P1 to P2 
C)  decrease the price level from P3 to P2 
D)  decrease the price level from P2 to P1

Question 19

During which decade was government expenditure in Australia the highest as a proportion of GDP?

Accepted Answer

A)  1970s 
B)  1980s 
C)  1990s 
D)  2000s 
A)  1970s 
B)  1980s 
C)  1990s 
D)  2000s

Question 20

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Accepted Answer

A) True 
 B)False

By decreasing government spending and aggregate demand,the policy the price level and equilibrium real GDP,ceteris paribus.

An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to increase interest rates.

Outline the differences between the government 'purchases multiplier' and the 'tax multiplier'. _ _

The the tax wedge,the smaller the difference between pre-tax and post-tax returns for an economic activity,the of that activity will occur.

Borrowing to pay for long-term capital expenditures makes sense as the benefits are received _________.

If the economy were in a recession,we would expect government expenditure to be _________.

A deliberate policy change in taxes and government spending to influence the level of aggregate demand is called __________.

A change in tax rates __________.

Increases in government spending will lower the long-term growth rate of GDP if it lowers and the government purchases goods and not goods.

Refer to Figure 18.2 for the following question. Figure 18.2 -If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to _________.

Induced taxes and transfer payments reduce the multiplier effects.

Crowding out results in _________.

In 2015/2016,the largest share of Australian federal government welfare payments went to __________.

Refer to Figure 18.1 for the following questions. Figure 18.1 -In Figure 18.1,if fiscal policy successfully moves the economy from point B to equilibrium at potential GDP,this will _______.

During which decade was government expenditure in Australia the highest as a proportion of GDP?

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

Exam 18: Fiscal Policy

By decreasing government spending and aggregate demand,the policy ________ the price level and ________ equilibrium real GDP,ceteris paribus.

An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to increase interest rates.

Outline the differences between the government 'purchases multiplier' and the 'tax multiplier'. _____________________________________________________________________________________________ _____________________________________________________________________________________________

The ________ the tax wedge,the smaller the difference between pre-tax and post-tax returns for an economic activity,the ________ of that activity will occur.

Borrowing to pay for long-term capital expenditures makes sense as the benefits are received _________.

If the economy were in a recession,we would expect government expenditure to be _________.

A deliberate policy change in taxes and government spending to influence the level of aggregate demand is called __________.

A change in tax rates __________.

Increases in government spending will lower the long-term growth rate of GDP if it lowers ________ and the government purchases ________ goods and not ________ goods.

Refer to Figure 18.2 for the following question. Figure 18.2 -If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to _________.

Induced taxes and transfer payments reduce the multiplier effects.

Crowding out results in _________.

In 2015/2016,the largest share of Australian federal government welfare payments went to __________.

Refer to Figure 18.1 for the following questions. Figure 18.1 -In Figure 18.1,if fiscal policy successfully moves the economy from point B to equilibrium at potential GDP,this will _______.

During which decade was government expenditure in Australia the highest as a proportion of GDP?

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

By decreasing government spending and aggregate demand,the policy the price level and equilibrium real GDP,ceteris paribus.

Outline the differences between the government 'purchases multiplier' and the 'tax multiplier'. _ _

The the tax wedge,the smaller the difference between pre-tax and post-tax returns for an economic activity,the of that activity will occur.

Increases in government spending will lower the long-term growth rate of GDP if it lowers and the government purchases goods and not goods.