Question 1

Figure 11-1  
-In Figure 11-1,assume that the economy is originally at E₂.If the government imposes contractionary economic policies,it is likely that

Accepted Answer

A) the new equilibrium will be E₃. 
B) the new equilibrium will be E₁. 
C) the price level will rise to 120. 
D) aggregate demand will be represented by the A D₁ line. 
A) the new equilibrium will be E₃. 
B) the new equilibrium will be E₁. 
C) the price level will rise to 120. 
D) aggregate demand will be represented by the A D₁ line. A

Question 2

Suppose there is a contractionary gap and the economy is in equilibrium on the SRAS at an output level beyond the economy's long-run real GDP.In the short run,if the government decreases spending then

Accepted Answer

A) output will decrease but prices will rise. 
B) output will increase but prices will fall. 
C) output and prices will fall. 
D) output and prices will rise. 
A) output will decrease but prices will rise. 
B) output will increase but prices will fall. 
C) output and prices will fall. 
D) output and prices will rise. C

Question 3

A bill is submitted to Parliament in January 2001 that is designed to stimulate the economy and increase employment.The legislation is passed in September 2001,and the spending occurs from October 2001 to March 2002.Consequently

Accepted Answer

A) the full effect of the fiscal policy change will not be felt until after March 2002 because of the effect time lag. 
B) the full effect of the fiscal policy change will not be felt until after March 2002 because of the recognition time lag. 
C) the full effect of the fiscal policy change will be felt by March 2002 because people anticipate the spending and change their behaviour accordingly. 
D) the full effect of the fiscal policy change will be felt when the last of the monies are spent by the government. 
A) the full effect of the fiscal policy change will not be felt until after March 2002 because of the effect time lag. 
B) the full effect of the fiscal policy change will not be felt until after March 2002 because of the recognition time lag. 
C) the full effect of the fiscal policy change will be felt by March 2002 because people anticipate the spending and change their behaviour accordingly. 
D) the full effect of the fiscal policy change will be felt when the last of the monies are spent by the government. A

Question 4

If other factors are held constant and the federal government increases its borrowing from the private sector in order to pay for an increased budget deficit,the result will be

Accepted Answer

A) an overall increase in the interest rate. 
B) an overall decrease in the interest rate. 
C) a cancelling of the crowding out effect. 
D) an increase in net exports. 
A) an overall increase in the interest rate. 
B) an overall decrease in the interest rate. 
C) a cancelling of the crowding out effect. 
D) an increase in net exports.

Question 5

The amount by which the equilibrium level of real GDP is less than the long-run equilibrium level as given by LRAS is referred to as

Accepted Answer

A) a contractionary gap. 
B) economic growth. 
C) the amount by which taxes should be increased in order to put the brakes on run-away inflation. 
D) an inflationary gap. 
A) a contractionary gap. 
B) economic growth. 
C) the amount by which taxes should be increased in order to put the brakes on run-away inflation. 
D) an inflationary gap.

Question 6

The various time lags involved with fiscal policy imply that

Accepted Answer

A) fiscal policy is effective only slowly,but the slowness ensures that it is effective in the long run. 
B) fiscal policy is most effective as a short-run measure to fine tune the economy's quarterly ups and downs. 
C) fiscal policy may often be destabilizing as the effects of the policy kick in after the need is over. 
D) when fiscal policy is carefully coordinated,it can quickly move to keep the economy at the full-employment level of real national income. 
A) fiscal policy is effective only slowly,but the slowness ensures that it is effective in the long run. 
B) fiscal policy is most effective as a short-run measure to fine tune the economy's quarterly ups and downs. 
C) fiscal policy may often be destabilizing as the effects of the policy kick in after the need is over. 
D) when fiscal policy is carefully coordinated,it can quickly move to keep the economy at the full-employment level of real national income.

Question 7

One part of the supply-side economics argument is that

Accepted Answer

A) lower marginal tax rates are needed to get Parliament to spend less money. 
B) lower marginal tax rates can increase total tax revenues. 
C) the marginal tax rate should be set at 50 percent. 
D) the relevant aggregate supply curve is close to horizontal. 
A) lower marginal tax rates are needed to get Parliament to spend less money. 
B) lower marginal tax rates can increase total tax revenues. 
C) the marginal tax rate should be set at 50 percent. 
D) the relevant aggregate supply curve is close to horizontal.

Question 8

Suppose the economy is experiencing a inflationary gap and the government decreases spending to close the gap.In the short run one would expect

Accepted Answer

A) output and the price level to remain constant. 
B) output to increase and the price level to remain constant. 
C) output and the price level to fall. 
D) output to remain constant and the price level to rise. 
A) output and the price level to remain constant. 
B) output to increase and the price level to remain constant. 
C) output and the price level to fall. 
D) output to remain constant and the price level to rise.

Question 9

Contractionary fiscal policy is designed to

Accepted Answer

A) reduce real national income and increase the price level. 
B) reduce real national income and reduce the price level. 
C) raise both real national income and the price level. 
D) raise the price level only. 
A) reduce real national income and increase the price level. 
B) reduce real national income and reduce the price level. 
C) raise both real national income and the price level. 
D) raise the price level only.

Question 10

When private expenditures decrease as a result of increased government spending,it is known as

Accepted Answer

A) the stabilizer effect. 
B) the crowding out effect. 
C) the multiplier effect. 
D) government deficit spending. 
A) the stabilizer effect. 
B) the crowding out effect. 
C) the multiplier effect. 
D) government deficit spending.

Question 11

Suppose the economy is at an equilibrium on the LRAS curve and the government decreases spending.In the short run one would expect

Accepted Answer

A) output and prices to decrease. 
B) output to remain constant and prices to increase. 
C) output to increase and prices to remain constant. 
D) output and prices to remain constant. 
A) output and prices to decrease. 
B) output to remain constant and prices to increase. 
C) output to increase and prices to remain constant. 
D) output and prices to remain constant.

Question 12

If the government decreases spending to move the economy closer to full employment,the government is most likely trying to

Accepted Answer

A) close a contractionary gap by increasing aggregate demand. 
B) close a contractionary gap by raising the price level. 
C) close an expansionary gap by decreasing aggregate demand. 
D) close an expansionary gap by increasing aggregate supply. 
A) close a contractionary gap by increasing aggregate demand. 
B) close a contractionary gap by raising the price level. 
C) close an expansionary gap by decreasing aggregate demand. 
D) close an expansionary gap by increasing aggregate supply.

Question 13

If the government decreases aggregate demand when the economy is at both short-run and long-run equilibrium,the full long-run effect of this fiscal policy will be to

Accepted Answer

A) decrease real GDP. 
B) decrease the price level. 
C) decrease either the real GDP or the price level,depending on the length of the time lag. 
D) decrease both real GDP and the price level. 
A) decrease real GDP. 
B) decrease the price level. 
C) decrease either the real GDP or the price level,depending on the length of the time lag. 
D) decrease both real GDP and the price level.

Question 14

An inflationary gap is

Accepted Answer

A) the difference between aggregate supply and aggregate demand. 
B) the amount of unwanted inventory accumulation. 
C) the amount by which taxes should be increased in order to put the brakes on run-away inflation. 
D) the amount by which the equilibrium level of real GDP exceeds the long-run equilibrium level as given by LRAS. 
A) the difference between aggregate supply and aggregate demand. 
B) the amount of unwanted inventory accumulation. 
C) the amount by which taxes should be increased in order to put the brakes on run-away inflation. 
D) the amount by which the equilibrium level of real GDP exceeds the long-run equilibrium level as given by LRAS.

Question 15

Explain what fiscal policy actions could eliminate an inflationary gap.

Accepted Answer

An inflationary gap exists when real GDP

Question 16

If the government increases spending to move the economy closer to full employment,the government is most likely trying to

Accepted Answer

A) close a contractionary gap by increasing aggregate demand. 
B) close a contractionary gap by raising the price level. 
C) close an expansionary gap by increasing aggregate demand. 
D) close an expansionary gap by increasing aggregate supply. 
A) close a contractionary gap by increasing aggregate demand. 
B) close a contractionary gap by raising the price level. 
C) close an expansionary gap by increasing aggregate demand. 
D) close an expansionary gap by increasing aggregate supply.

Question 17

Suppose the government believes the economy is operating beyond the full-employment real GDP.What kind of fiscal policy would it pursue? Would it matter if the belief was correct or not? How?

Accepted Answer

The government would initiate contractio

Question 18

A contractionary gap is

Accepted Answer

A) the difference between aggregate supply and aggregate demand. 
B) the amount of unwanted inventory accumulation. 
C) the amount by which taxes should be increased in order to put the brakes on run-away inflation. 
D) the amount by which the equilibrium level of real GDP is less than the long-run equilibrium level as given by LRAS. 
A) the difference between aggregate supply and aggregate demand. 
B) the amount of unwanted inventory accumulation. 
C) the amount by which taxes should be increased in order to put the brakes on run-away inflation. 
D) the amount by which the equilibrium level of real GDP is less than the long-run equilibrium level as given by LRAS.

Question 19

Figure 11-3  
-As the economy expands from Y₂ to Y₃ in Figure 11-3,

Accepted Answer

A) a budget surplus is created. 
B) a budget deficit is created. 
C) tax revenues fall. 
D) government transfers rise. 
A) a budget surplus is created. 
B) a budget deficit is created. 
C) tax revenues fall. 
D) government transfers rise.

Question 20

An advantage of automatic stabilizers over discretionary fiscal policy is that

Accepted Answer

A) automatic stabilizers are not subject to all the same time lags that discretionary fiscal policy is. 
B) automatic stabilizers can be easily fine-tuned to move the economy to full employment. 
C) only the Prime Minister is involved in implementing automatic stabilizers instead of both the Prime Minister and Parliament. 
D) the Ricardian equivalence theorem applies more readily to automatic stabilizers than to discretionary fiscal policy. 
A) automatic stabilizers are not subject to all the same time lags that discretionary fiscal policy is. 
B) automatic stabilizers can be easily fine-tuned to move the economy to full employment. 
C) only the Prime Minister is involved in implementing automatic stabilizers instead of both the Prime Minister and Parliament. 
D) the Ricardian equivalence theorem applies more readily to automatic stabilizers than to discretionary fiscal policy.

Figure 11-1 -In Figure 11-1,assume that the economy is originally at E₂.If the government imposes contractionary economic policies,it is likely that

Suppose there is a contractionary gap and the economy is in equilibrium on the SRAS at an output level beyond the economy's long-run real GDP.In the short run,if the government decreases spending then

A bill is submitted to Parliament in January 2001 that is designed to stimulate the economy and increase employment.The legislation is passed in September 2001,and the spending occurs from October 2001 to March 2002.Consequently

If other factors are held constant and the federal government increases its borrowing from the private sector in order to pay for an increased budget deficit,the result will be

The amount by which the equilibrium level of real GDP is less than the long-run equilibrium level as given by LRAS is referred to as

The various time lags involved with fiscal policy imply that

One part of the supply-side economics argument is that

Suppose the economy is experiencing a inflationary gap and the government decreases spending to close the gap.In the short run one would expect

Contractionary fiscal policy is designed to

When private expenditures decrease as a result of increased government spending,it is known as

Suppose the economy is at an equilibrium on the LRAS curve and the government decreases spending.In the short run one would expect

If the government decreases spending to move the economy closer to full employment,the government is most likely trying to

If the government decreases aggregate demand when the economy is at both short-run and long-run equilibrium,the full long-run effect of this fiscal policy will be to

An inflationary gap is

Explain what fiscal policy actions could eliminate an inflationary gap.

If the government increases spending to move the economy closer to full employment,the government is most likely trying to

Suppose the government believes the economy is operating beyond the full-employment real GDP.What kind of fiscal policy would it pursue? Would it matter if the belief was correct or not? How?

A contractionary gap is

Figure 11-3 -As the economy expands from Y₂ to Y₃ in Figure 11-3,

An advantage of automatic stabilizers over discretionary fiscal policy is that

The Nature of Economics

Production Possibilities and Economic Systems

Demand and Supply

Introduction to Macroeconomics

Measuring the Economys Performance

Modelling Real Gdp and the Price Level in the Long Run

Economic Growth and Development

Modelling Real Gdp and the Price Level in the Short Run

Consumption, investment, and the Multiplier

The Public Sector

Money and the Banking System

Money Creation and Deposit Insurance

The Bank of Canada and Monetary Policy

Issues in Stabilization Policy

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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Exam 11: Fiscal Policy and the Public Debt

Figure 11-1 -In Figure 11-1,assume that the economy is originally at E₂.If the government imposes contractionary economic policies,it is likely that

Suppose there is a contractionary gap and the economy is in equilibrium on the SRAS at an output level beyond the economy's long-run real GDP.In the short run,if the government decreases spending then

A bill is submitted to Parliament in January 2001 that is designed to stimulate the economy and increase employment.The legislation is passed in September 2001,and the spending occurs from October 2001 to March 2002.Consequently

If other factors are held constant and the federal government increases its borrowing from the private sector in order to pay for an increased budget deficit,the result will be

The amount by which the equilibrium level of real GDP is less than the long-run equilibrium level as given by LRAS is referred to as

The various time lags involved with fiscal policy imply that

One part of the supply-side economics argument is that

Suppose the economy is experiencing a inflationary gap and the government decreases spending to close the gap.In the short run one would expect

Contractionary fiscal policy is designed to

When private expenditures decrease as a result of increased government spending,it is known as

Suppose the economy is at an equilibrium on the LRAS curve and the government decreases spending.In the short run one would expect

If the government decreases spending to move the economy closer to full employment,the government is most likely trying to

If the government decreases aggregate demand when the economy is at both short-run and long-run equilibrium,the full long-run effect of this fiscal policy will be to

An inflationary gap is

Explain what fiscal policy actions could eliminate an inflationary gap.

If the government increases spending to move the economy closer to full employment,the government is most likely trying to

Suppose the government believes the economy is operating beyond the full-employment real GDP.What kind of fiscal policy would it pursue? Would it matter if the belief was correct or not? How?

A contractionary gap is

Figure 11-3 -As the economy expands from Y₂ to Y₃ in Figure 11-3,

An advantage of automatic stabilizers over discretionary fiscal policy is that

The Nature of Economics

Production Possibilities and Economic Systems

Demand and Supply

Introduction to Macroeconomics

Measuring the Economys Performance

Modelling Real Gdp and the Price Level in the Long Run

Economic Growth and Development

Modelling Real Gdp and the Price Level in the Short Run

Consumption, investment, and the Multiplier

The Public Sector

Money and the Banking System

Money Creation and Deposit Insurance

The Bank of Canada and Monetary Policy

Issues in Stabilization Policy

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters