Question 1

What are direct expenditure offsets and what are their effects on the effectiveness of fiscal policy?

Accepted Answer

Direct expenditure offsets are actions o

Question 2

Suppose the government decreases lump-sum taxes.This causes

Accepted Answer

A) disposable income to increase,which causes consumption spending to increase and aggregate demand to increase. 
B) government spending to increase,which causes aggregate demand to increase. 
C) consumption spending to decrease and spending on imports to increase.The effect on aggregate demand depends on whether domestic spending or spending on imports decreased the most. 
D) disposable income to increase,which causes aggregate supply to increase. 
A) disposable income to increase,which causes consumption spending to increase and aggregate demand to increase. 
B) government spending to increase,which causes aggregate demand to increase. 
C) consumption spending to decrease and spending on imports to increase.The effect on aggregate demand depends on whether domestic spending or spending on imports decreased the most. 
D) disposable income to increase,which causes aggregate supply to increase.

Question 3

When the economy is operating on the LRAS curve,then expansionary fiscal policy will

Accepted Answer

A) generate higher prices in the short run,but will induce aggregate supply to increase in the long run. 
B) generate an increase in real national income and higher prices in both the short run and the long run. 
C) generate an increase in real national income without higher prices in the short run,but then real national income will return to its long-run level and the price level will increase. 
D) generate an increase in real national income and higher prices in the short run,but then real national income will decrease to its long-run level and the price level will increase some more. 
A) generate higher prices in the short run,but will induce aggregate supply to increase in the long run. 
B) generate an increase in real national income and higher prices in both the short run and the long run. 
C) generate an increase in real national income without higher prices in the short run,but then real national income will return to its long-run level and the price level will increase. 
D) generate an increase in real national income and higher prices in the short run,but then real national income will decrease to its long-run level and the price level will increase some more.

Question 4

One characteristic of built-in or automatic stabilizers is that

Accepted Answer

A) they require no legislative action by Parliament to be made effective. 
B) they automatically produce surpluses during recessions and deficits during inflation. 
C) they have no effect on the distribution of income. 
D) they reduce the size of the public debt during times of recession. 
A) they require no legislative action by Parliament to be made effective. 
B) they automatically produce surpluses during recessions and deficits during inflation. 
C) they have no effect on the distribution of income. 
D) they reduce the size of the public debt during times of recession.

Question 5

In the Canadian economy,the progressive income tax and employment insurance are both

Accepted Answer

A) destabilizers. 
B) discretionary parliamentary effectors. 
C) automatic stabilizers. 
D) time lag factors. 
A) destabilizers. 
B) discretionary parliamentary effectors. 
C) automatic stabilizers. 
D) time lag factors.

Question 6

When the economy is operating on its long-run aggregate supply curve and the government initiates an expansionary fiscal policy,the result is

Accepted Answer

A) a permanent increase in real national income and a permanent increase in the price level. 
B) a temporary increase in real national income and a temporary increase in the price level. 
C) a temporary increase in real national income and an increase in the price level,followed by a reduction of real national income to its original level and a further increase in the price level. 
D) a temporary increase in real national income and an increase in the price level,followed by a further increase in the price level. 
A) a permanent increase in real national income and a permanent increase in the price level. 
B) a temporary increase in real national income and a temporary increase in the price level. 
C) a temporary increase in real national income and an increase in the price level,followed by a reduction of real national income to its original level and a further increase in the price level. 
D) a temporary increase in real national income and an increase in the price level,followed by a further increase in the price level.

Question 7

When interest rates increase in Canada,the value of the dollar is likely to

Accepted Answer

A) increase and net exports are likely to decline. 
B) decrease and net exports are likely to decline. 
C) increase and net exports are likely to increase. 
D) remain constant and net exports are likely to remain unchanged. 
A) increase and net exports are likely to decline. 
B) decrease and net exports are likely to decline. 
C) increase and net exports are likely to increase. 
D) remain constant and net exports are likely to remain unchanged.

Question 8

The amount by which the equilibrium level of real GDP exceeds 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 9

To shift the aggregate demand curve outward and thereby reduce a contractionary gap,the government could

Accepted Answer

A) increase taxes. 
B) increase government spending. 
C) decrease government spending. 
D) increase Social Security benefits. 
A) increase taxes. 
B) increase government spending. 
C) decrease government spending. 
D) increase Social Security benefits.

Question 10

Figure 11-2  
-In Figure 11-2,if the government increases government spending to shift aggregate demand from A D₁ to A D₂,but aggregate demand only increases to AD₃,then it is likely that

Accepted Answer

A) price increases are preventing the full multiplier effect from taking place. 
B) consumers have increased saving to prepare for higher taxes in the future. 
C) investment spending has fallen by an amount equal to the increase in government spending. 
D) the government also reduced taxes. 
A) price increases are preventing the full multiplier effect from taking place. 
B) consumers have increased saving to prepare for higher taxes in the future. 
C) investment spending has fallen by an amount equal to the increase in government spending. 
D) the government also reduced taxes.

Question 11

"Expansionary fiscal policy is always 100 percent effective when the short-run aggregate supply curve is horizontal." Is this statement true?

Accepted Answer

A) Yes 
B) Yes,when the long-run aggregate supply curve is horizontal too 
C) No,because crowding out could take place 
D) No,because the increased spending may cause the price level to increase 
A) Yes 
B) Yes,when the long-run aggregate supply curve is horizontal too 
C) No,because crowding out could take place 
D) No,because the increased spending may cause the price level to increase

Question 12

Suppose the economy is in equilibrium on the LRAS curve and government spending increases.In the long run

Accepted Answer

A) prices and output will return to the original levels. 
B) prices will increase,but output will return to the original level. 
C) prices and output will increase. 
D) output will increase and prices will decrease. 
A) prices and output will return to the original levels. 
B) prices will increase,but output will return to the original level. 
C) prices and output will increase. 
D) output will increase and prices will decrease.

Question 13

What are the effects of fiscal policy during normal times? What are the effects of fiscal policy during abnormal times?

Accepted Answer

During normal times,discretionary fiscal

Question 14

Automatic stabilizers

Accepted Answer

A) shorten the recognition lag of discretionary fiscal policy. 
B) often are destabilizing in the economy because of the various lags associated with any kind of fiscal policy. 
C) provide signals to Parliament about changes in fiscal policy that need to be made to keep the economy operating at its full employment level. 
D) moderate changes in disposable income resulting from changes in overall business activity. 
A) shorten the recognition lag of discretionary fiscal policy. 
B) often are destabilizing in the economy because of the various lags associated with any kind of fiscal policy. 
C) provide signals to Parliament about changes in fiscal policy that need to be made to keep the economy operating at its full employment level. 
D) moderate changes in disposable income resulting from changes in overall business activity.

Question 15

Which of the following statements about fiscal policy is FALSE?

Accepted Answer

A) Real GDP can be increased above its long-run equilibrium only in the short run. 
B) Real GDP is expanding over time in the long-run. 
C) Government can shift the aggregate demand curve inward by decreasing spending. 
D) Government can shift the aggregate demand curve outward by reducing spending. 
A) Real GDP can be increased above its long-run equilibrium only in the short run. 
B) Real GDP is expanding over time in the long-run. 
C) Government can shift the aggregate demand curve inward by decreasing spending. 
D) Government can shift the aggregate demand curve outward by reducing spending.

Question 16

If the government began providing free textbooks to college students who were already buying textbooks from the private sector,the government's action would result in

Accepted Answer

A) an increase in real GDP. 
B) crowding out the private sector. 
C) a ricardian dilemma. 
D) a reduction of the government deficit. 
A) an increase in real GDP. 
B) crowding out the private sector. 
C) a ricardian dilemma. 
D) a reduction of the government deficit.

Question 17

Describe in detail what automatic stabilizers are and their effect on the economy in times of recession and boom.

Accepted Answer

Define what they are.List those that are

Question 18

Suppose the economy is at a short run equilibrium and is beyond the economy's long run potential level of real GDP.Which of the following fiscal policies would increase output and prices in the short run?

Accepted Answer

A) a decrease in government spending 
B) a reduction in taxes 
C) an increase in taxes 
D) an increase in interest rates 
A) a decrease in government spending 
B) a reduction in taxes 
C) an increase in taxes 
D) an increase in interest rates

Question 19

Figure 11-1  
-In Figure 11-1,assume that the economy is originally at E₁.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 E₂. 
C) the price level will fall to 110. 
D) aggregate demand will be represented by the A D₂ line. 
A) the new equilibrium will be E₃. 
B) the new equilibrium will be E₂. 
C) the price level will fall to 110. 
D) aggregate demand will be represented by the A D₂ line.

Question 20

If the government increases spending while holding taxes constant,we expect

Accepted Answer

A) an increase in investment spending by businesses too,as they anticipate future economic growth. 
B) a decrease in saving as consumers follow suit and also increase borrowing. 
C) investment spending by businesses to increase. 
D) interest rates to rise. 
A) an increase in investment spending by businesses too,as they anticipate future economic growth. 
B) a decrease in saving as consumers follow suit and also increase borrowing. 
C) investment spending by businesses to increase. 
D) interest rates to rise.

What are direct expenditure offsets and what are their effects on the effectiveness of fiscal policy?

Suppose the government decreases lump-sum taxes.This causes

When the economy is operating on the LRAS curve,then expansionary fiscal policy will

One characteristic of built-in or automatic stabilizers is that

In the Canadian economy,the progressive income tax and employment insurance are both

When the economy is operating on its long-run aggregate supply curve and the government initiates an expansionary fiscal policy,the result is

When interest rates increase in Canada,the value of the dollar is likely to

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

To shift the aggregate demand curve outward and thereby reduce a contractionary gap,the government could

Figure 11-2 -In Figure 11-2,if the government increases government spending to shift aggregate demand from A D₁ to A D₂,but aggregate demand only increases to AD₃,then it is likely that

"Expansionary fiscal policy is always 100 percent effective when the short-run aggregate supply curve is horizontal." Is this statement true?

Suppose the economy is in equilibrium on the LRAS curve and government spending increases.In the long run

What are the effects of fiscal policy during normal times? What are the effects of fiscal policy during abnormal times?

Automatic stabilizers

Which of the following statements about fiscal policy is FALSE?

If the government began providing free textbooks to college students who were already buying textbooks from the private sector,the government's action would result in

Describe in detail what automatic stabilizers are and their effect on the economy in times of recession and boom.

Suppose the economy is at a short run equilibrium and is beyond the economy's long run potential level of real GDP.Which of the following fiscal policies would increase output and prices in the short run?

Figure 11-1 -In Figure 11-1,assume that the economy is originally at E₁.If the government imposes contractionary economic policies,it is likely that

If the government increases spending while holding taxes constant,we expect

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

What are direct expenditure offsets and what are their effects on the effectiveness of fiscal policy?

Suppose the government decreases lump-sum taxes.This causes

When the economy is operating on the LRAS curve,then expansionary fiscal policy will

One characteristic of built-in or automatic stabilizers is that

In the Canadian economy,the progressive income tax and employment insurance are both

When the economy is operating on its long-run aggregate supply curve and the government initiates an expansionary fiscal policy,the result is

When interest rates increase in Canada,the value of the dollar is likely to

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

To shift the aggregate demand curve outward and thereby reduce a contractionary gap,the government could

Figure 11-2 -In Figure 11-2,if the government increases government spending to shift aggregate demand from A D₁ to A D₂,but aggregate demand only increases to AD₃,then it is likely that

"Expansionary fiscal policy is always 100 percent effective when the short-run aggregate supply curve is horizontal." Is this statement true?

Suppose the economy is in equilibrium on the LRAS curve and government spending increases.In the long run

What are the effects of fiscal policy during normal times? What are the effects of fiscal policy during abnormal times?

Automatic stabilizers

Which of the following statements about fiscal policy is FALSE?

If the government began providing free textbooks to college students who were already buying textbooks from the private sector,the government's action would result in

Describe in detail what automatic stabilizers are and their effect on the economy in times of recession and boom.

Suppose the economy is at a short run equilibrium and is beyond the economy's long run potential level of real GDP.Which of the following fiscal policies would increase output and prices in the short run?

Figure 11-1 -In Figure 11-1,assume that the economy is originally at E₁.If the government imposes contractionary economic policies,it is likely that

If the government increases spending while holding taxes constant,we expect

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