Question 1

Explain why government deficits are related to current account deficits.

Accepted Answer

When the government runs a deficit,if Ca

Question 2

If the government increases spending but doesn't raise taxes,

Accepted Answer

A) aggregate demand will increase without any effect on the price level. 
B) borrowing by the government will take place. 
C) the government will have to sell some assets,such as oil and national parks. 
D) the government will have to either lower expenditures or raise taxes the next year. 
A) aggregate demand will increase without any effect on the price level. 
B) borrowing by the government will take place. 
C) the government will have to sell some assets,such as oil and national parks. 
D) the government will have to either lower expenditures or raise taxes the next year.

Question 3

If the government holds spending constant while decreasing taxes,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.

Question 4

If the economy is below its full-employment level of real national income,a supply-side economist would argue the appropriate policy is

Accepted Answer

A) expansionary fiscal policy by lowering marginal tax rates. 
B) expansionary fiscal policy of increasing government spending. 
C) lowering marginal tax rates on people and raising them on corporations. 
D) leaving the economy alone and letting the natural forces bring it into a long-run equilibrium. 
A) expansionary fiscal policy by lowering marginal tax rates. 
B) expansionary fiscal policy of increasing government spending. 
C) lowering marginal tax rates on people and raising them on corporations. 
D) leaving the economy alone and letting the natural forces bring it into a long-run equilibrium.

Question 5

Three candidates for political office disagree over the benefits of enlarging the federal budget deficit.Candidate C says the stimulation package is needed to increase employment and national income;Candidate D says it will only cause higher prices;and Candidate F says it will have no real effect.How do the three candidates differ with respect to the condition of the economy and the effects of fiscal policy?

Accepted Answer

A) Candidate C thinks the simple Keynesian model is applicable,while D thinks the expansionary policy will crowd out private investment.F believes the economy is at full employment. 
B) Candidate C thinks the simple Keynesian model is applicable;D thinks the short-run aggregate supply curve is upward sloping;and F thinks the expansionary policy will generate lower interest rates. 
C) Candidate C thinks the economy is at less than full employment and that the short-run aggregate supply curve is horizontal.Candidate D believes the economy is at full employment,while Candidate F believes the expansionary policy will be offset completely. 
D) Candidate C thinks the short-run aggregate supply curve is upward sloping;D thinks interest rates will rise;and F thinks the economy is at full employment. 
A) Candidate C thinks the simple Keynesian model is applicable,while D thinks the expansionary policy will crowd out private investment.F believes the economy is at full employment. 
B) Candidate C thinks the simple Keynesian model is applicable;D thinks the short-run aggregate supply curve is upward sloping;and F thinks the expansionary policy will generate lower interest rates. 
C) Candidate C thinks the economy is at less than full employment and that the short-run aggregate supply curve is horizontal.Candidate D believes the economy is at full employment,while Candidate F believes the expansionary policy will be offset completely. 
D) Candidate C thinks the short-run aggregate supply curve is upward sloping;D thinks interest rates will rise;and F thinks the economy is at full employment.

Question 6

Suppose the economy is experiencing a inflationary gap and the government increases 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 rise even further . 
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 rise even further . 
D) output to remain constant and the price level to rise.

Question 7

If the economy is experiencing a recessionary gap and the government wants to speed up the adjustment to full employment,the government should

Accepted Answer

A) increase aggregate supply by cutting spending. 
B) reduce aggregate supply by cutting spending or raising taxes. 
C) increase aggregate demand by cutting taxes or raising spending. 
D) reduce aggregate demand by cutting spending or raising taxes. 
A) increase aggregate supply by cutting spending. 
B) reduce aggregate supply by cutting spending or raising taxes. 
C) increase aggregate demand by cutting taxes or raising spending. 
D) reduce aggregate demand by cutting spending or raising taxes.

Question 8

Suppose the economy is experiencing a contractionary gap and the government increases 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 rise. 
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 rise. 
D) output to remain constant and the price level to rise.

Question 9

If the government wants to engage in fiscal policy to close an inflationary gap,it should

Accepted Answer

A) increase government spending in order to increase aggregate supply. 
B) decrease government spending in order to increase aggregate supply. 
C) increase government spending in order to increase aggregate demand. 
D) decrease government spending in order to decrease aggregate demand. 
A) increase government spending in order to increase aggregate supply. 
B) decrease government spending in order to increase aggregate supply. 
C) increase government spending in order to increase aggregate demand. 
D) decrease government spending in order to decrease aggregate demand.

Question 10

The period between the recognition of a problem and the implementation of a policy to solve the problem is

Accepted Answer

A) the recognition lag. 
B) the action time lag. 
C) the effect time lag. 
D) the fine tuning lag. 
A) the recognition lag. 
B) the action time lag. 
C) the effect time lag. 
D) the fine tuning lag.

Question 11

Suppose the economy is experiencing a contractionary 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 12

An example of an automatic stabilizer is

Accepted Answer

A) unemployment compensation. 
B) a surtax to slow down an overheated economy. 
C) a horizontal aggregate supply curve. 
D) a change in the marginal tax rates. 
A) unemployment compensation. 
B) a surtax to slow down an overheated economy. 
C) a horizontal aggregate supply curve. 
D) a change in the marginal tax rates.

Question 13

The adjustment of government spending and taxes in order to achieve certain national economic goals refers to

Accepted Answer

A) monetary policy. 
B) fiscal policy. 
C) the national debt. 
D) seignorage 
A) monetary policy. 
B) fiscal policy. 
C) the national debt. 
D) seignorage

Question 14

If the economy is experiencing an inflationary gap and the government wants to speed up the adjustment to full employment,the government should

Accepted Answer

A) increase aggregate supply by cutting spending. 
B) reduce aggregate supply by cutting spending or raising taxes. 
C) reduce aggregate demand by cutting taxes or raising spending. 
D) reduce aggregate demand by cutting spending or raising taxes. 
A) increase aggregate supply by cutting spending. 
B) reduce aggregate supply by cutting spending or raising taxes. 
C) reduce aggregate demand by cutting taxes or raising spending. 
D) reduce aggregate demand by cutting spending or raising taxes.

Question 15

A recent government proposal to increase marginal tax rates on the wealthiest 2 percent of Canadians is supposed to generate an additional $100 million in tax revenues.It is likely that

Accepted Answer

A) the actual revenue raised will exceed the $100 million as the other 98 percent of the population will increase their work effort with a more fair tax system. 
B) the actual revenue raised will be more than $100 million because the short-run aggregate supply curve is upward sloping. 
C) the actual revenue raised will be less than $100 million because some of the people will respond by working less and making less income that can be taxed. 
D) the actual revenue raised will be close to $100 million because the wealthy don't respond to work incentives the way poorer workers do. 
A) the actual revenue raised will exceed the $100 million as the other 98 percent of the population will increase their work effort with a more fair tax system. 
B) the actual revenue raised will be more than $100 million because the short-run aggregate supply curve is upward sloping. 
C) the actual revenue raised will be less than $100 million because some of the people will respond by working less and making less income that can be taxed. 
D) the actual revenue raised will be close to $100 million because the wealthy don't respond to work incentives the way poorer workers do.

Question 16

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 reduce output and prices in the short run?

Accepted Answer

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

Question 17

A recent government proposal to increase marginal taxes on those making over $200,000 a year will generate $100 billion in new tax revenues.A supply-side economist would argue that the actual revenue raised will be

Accepted Answer

A) less than $100 billion because some people will respond by working less. 
B) exactly $100 billion because there are no offsetting factors to a tax increase. 
C) more than $100 billion because lower income people will work harder when they perceive the tax system is more fair. 
D) more than $100 billion because interest rates will also be affected. 
A) less than $100 billion because some people will respond by working less. 
B) exactly $100 billion because there are no offsetting factors to a tax increase. 
C) more than $100 billion because lower income people will work harder when they perceive the tax system is more fair. 
D) more than $100 billion because interest rates will also be affected.

Question 18

What are the various time lags that affect discretionary fiscal policy,and what are their effects?

Accepted Answer

The recognition lag refers to the time i

Question 19

The crowding out effect is usually associated with

Accepted Answer

A) a temporary change in taxes. 
B) an increase in the rate of interest following government borrowing. 
C) the reinforcing impact of provincial tax changes on federal tax changes. 
D) the impact of a tax cut when the aggregate supply function is horizontal. 
A) a temporary change in taxes. 
B) an increase in the rate of interest following government borrowing. 
C) the reinforcing impact of provincial tax changes on federal tax changes. 
D) the impact of a tax cut when the aggregate supply function is horizontal.

Question 20

If government spending is increased without a raise in taxes,net exports will eventually decrease due to a rise in interest rates.This phenomenon is known as the

Accepted Answer

A) supply-side effect. 
B) marginal boost. 
C) Paris factor. 
D) net export effect. 
A) supply-side effect. 
B) marginal boost. 
C) Paris factor. 
D) net export effect.

Explain why government deficits are related to current account deficits.

If the government increases spending but doesn't raise taxes,

If the government holds spending constant while decreasing taxes,we expect

If the economy is below its full-employment level of real national income,a supply-side economist would argue the appropriate policy is

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

If the economy is experiencing a recessionary gap and the government wants to speed up the adjustment to full employment,the government should

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

If the government wants to engage in fiscal policy to close an inflationary gap,it should

The period between the recognition of a problem and the implementation of a policy to solve the problem is

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

An example of an automatic stabilizer is

The adjustment of government spending and taxes in order to achieve certain national economic goals refers to

If the economy is experiencing an inflationary gap and the government wants to speed up the adjustment to full employment,the government should

A recent government proposal to increase marginal tax rates on the wealthiest 2 percent of Canadians is supposed to generate an additional $100 million in tax revenues.It is likely that

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 reduce output and prices in the short run?

A recent government proposal to increase marginal taxes on those making over $200,000 a year will generate $100 billion in new tax revenues.A supply-side economist would argue that the actual revenue raised will be

What are the various time lags that affect discretionary fiscal policy,and what are their effects?

The crowding out effect is usually associated with

If government spending is increased without a raise in taxes,net exports will eventually decrease due to a rise in interest rates.This phenomenon is known as the

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

Exam 11: Fiscal Policy and the Public Debt

Explain why government deficits are related to current account deficits.

If the government increases spending but doesn't raise taxes,

If the government holds spending constant while decreasing taxes,we expect

If the economy is below its full-employment level of real national income,a supply-side economist would argue the appropriate policy is

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

If the economy is experiencing a recessionary gap and the government wants to speed up the adjustment to full employment,the government should

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

If the government wants to engage in fiscal policy to close an inflationary gap,it should

The period between the recognition of a problem and the implementation of a policy to solve the problem is

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

An example of an automatic stabilizer is

The adjustment of government spending and taxes in order to achieve certain national economic goals refers to

If the economy is experiencing an inflationary gap and the government wants to speed up the adjustment to full employment,the government should

A recent government proposal to increase marginal tax rates on the wealthiest 2 percent of Canadians is supposed to generate an additional $100 million in tax revenues.It is likely that

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 reduce output and prices in the short run?

A recent government proposal to increase marginal taxes on those making over $200,000 a year will generate $100 billion in new tax revenues.A supply-side economist would argue that the actual revenue raised will be

What are the various time lags that affect discretionary fiscal policy,and what are their effects?

The crowding out effect is usually associated with

If government spending is increased without a raise in taxes,net exports will eventually decrease due to a rise in interest rates.This phenomenon is known as the

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