Question 1

An increase in taxes would be an expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 2

Who among the following owned the smallest percentage of Canada's public debt in 2016, using Figure 13-7?

Accepted Answer

A)  Private equity funds
B)  Nonresidents
C)  The Bank of Canada
D)  ChinaE) C) and D)
F) B) and D)

Question 3

A major reason that a public debt cannot bankrupt the Federal government is because:

Accepted Answer

A)  the public debt is mostly held by foreigners.
B)  the Federal government has the Social Security Trust Fund.
C)  the public debt can be easily refinanced.
D)  the Federal government can draw on its gold reserves.E) B) and D)
F) C) and D)

Question 4

If government increases the size of its full-employment surplus, we can:

Accepted Answer

A)  assume that government is causing interest rates to rise.
B)  not determine government's impact on the economy without also knowing the status of the actual budget.
C)  assume that government is having a contractionary effect on the economy.
D)  assume that government is having an expansionary effect on the economy.E) All of the above
F) None of the above

Question 5

The net export effect may partially counteract an expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 6

Refer to the above diagram.Which tax system has the least built-in stability?

Accepted Answer

A)  T4
B)  T3
C)  T2
D)  T1E) A) and B)
F) All of the above

Question 7

If fiscal policy leads to higher interest rates, the dollar may appreciate and net exports fall.

Accepted Answer

A) True 
 B)False

Question 8

As a percent of GDP, Canada's public debt is:

Accepted Answer

A)  the fourth highest among major industrial nations.
B)  one of the lowest among major industrial nations.
C)  in the high range of debts compared to major industrial nations.
D)  higher than that of the United States, but lower than that of Germany.E) All of the above
F) A) and D)

Question 9

Refer to the above diagram where T is tax revenues and G is government expenditures.All figures are in billions of dollars.If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the full-employment or cyclically adjusted deficit is:

Accepted Answer

A)  $40 billion.
B)  zero.
C)  $60 billion.
D)  $20 billion.E) B) and D)
F) All of the above

Question 10

An appropriate fiscal policy for severe demand-pull inflation is:

Accepted Answer

A)  an increase in government spending.
B)  depreciation of the dollar.
C)  a reduction in interest rates.
D)  a tax rate increase.E) B) and D)
F) A) and B)

Question 11

Other things equal, the stock of capital inherited by future generations is likely to be smaller when government spending:

Accepted Answer

A)  increases during a period of recession, rather than prosperity.
B)  is primarily for capital-type goods.
C)  is financed by borrowing.
D)  is financed by taxation.E) A) and D)
F) A) and C)

Question 12

The greater the progressiveness of the tax system, the less is the built-in stability of the economy.

Accepted Answer

A) True 
 B)False

Question 13

One reason the public debt will not bankrupt the Federal government is that the:

Accepted Answer

A)  cost is shifted to future generations.
B)  debt has a pro-cyclical effect on the economy.
C)  debt can be refinanced by selling new bonds.
D)  burden of the debt will be crowded-out by new investment.E) All of the above
F) A) and B)

Question 14

Refer to the above diagram where T is tax revenues and G is government expenditures.All figures are in billions of dollars.If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the actual budget deficit is:

Accepted Answer

A)  $200 billion.
B)  $20 billion.
C)  $40 billion.
D)  $60 billion.E) None of the above
F) All of the above

Question 15

Refer to the above graph.If interest rates increased by 2 percentage points, what event would most likely counteract the crowding-out effect?

Accepted Answer

A)  a shift from curve B to curve A
B)  a shift from curve A to curve B
C)  a movement from point 5 to point 2
D)  a movement from point 3 to point 1E) None of the above
F) C) and D)

Question 16

Refer to the above data.If a 10 percent proportional tax on income is imposed, the consumption schedule will now be:

Accepted Answer

A)  Column A
B)  Column B
C)  Column C
D)  Column DE) A) and B)
F) A) and C)

Question 17

With a regressive tax system, as the level of income increases in an economy, the average tax rate will:

Accepted Answer

A)  increase.
B)  decrease.
C)  remain constant.
D)  either increase or decrease.E) B) and C)
F) A) and B)

Question 18

(1)  The composite index of leading indicators turns downward for three consecutive months; (2)  Economists reach agreement that the economy is moving into a recession; (3)  A tax cut is proposed in Parliament; (4)  The tax cut is passed by Parliament; (5)  Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.Refer to the above information.The recognition lag of fiscal policy is reflected in events:

Accepted Answer

A)  1 and 2.
B)  2 and 3.
C)  3 and 4.
D)  4 and 5.E) B) and C)
F) A) and D)

Question 19

Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP)  of $40 is imposed in this economy, the marginal propensity to consume is:

Accepted Answer

A)  .8 before taxes and .6 after taxes.
B)  .8 both before and after taxes.
C)  .6 before taxes and .8 after taxes.
D)  .8 before taxes and .4 after taxes.E) B) and D)
F) A) and D)

Question 20

The "crowding out" effect suggests that:

Accepted Answer

A)  government spending is increasing at the expense of private investment.
B)  imports are replacing domestic production.
C)  private investment is increasing at the expense of government spending.
D)  consumption is increasing at the expense of investment.E) A) and B)
F) A) and C)

Exam 13: B: Fiscal Policy, Deficits, Surpluses, and Debt

Correct Answer
verified

Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, the marginal propensity to consume is:

Correct Answer
verified

Refer to the above data.If a 10 percent proportional tax on income is imposed, the consumption schedule will now be:

Correct Answer
verified

Refer to the above diagram where T is tax revenues and G is government expenditures.All figures are in billions of dollars.If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the actual budget deficit is:

Correct Answer
verified

Refer to the above graph.If interest rates increased by 2 percentage points, what event would most likely counteract the crowding-out effect?

Correct Answer
verified

The greater the progressiveness of the tax system, the less is the built-in stability of the economy.

Correct Answer
verified

An appropriate fiscal policy for severe demand-pull inflation is:

Correct Answer
verified

One reason the public debt will not bankrupt the Federal government is that the:

Correct Answer
verified

A major reason that a public debt cannot bankrupt the Federal government is because:

Correct Answer
verified

Refer to the above diagram where T is tax revenues and G is government expenditures.All figures are in billions of dollars.If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the full-employment or cyclically adjusted deficit is:

Correct Answer
verified

If government increases the size of its full-employment surplus, we can:

Correct Answer
verified

An increase in taxes would be an expansionary fiscal policy.

Correct Answer
verified

As a percent of GDP, Canada's public debt is:

Correct Answer
verified

Refer to the above diagram.Which tax system has the least built-in stability?

Correct Answer
verified

Other things equal, the stock of capital inherited by future generations is likely to be smaller when government spending:

Correct Answer
verified

The "crowding out" effect suggests that:

Correct Answer
verified

If fiscal policy leads to higher interest rates, the dollar may appreciate and net exports fall.

Correct Answer
verified

With a regressive tax system, as the level of income increases in an economy, the average tax rate will:

Correct Answer
verified

Who among the following owned the smallest percentage of Canada's public debt in 2016, using Figure 13-7?

Correct Answer
verified

The net export effect may partially counteract an expansionary fiscal policy.

Correct Answer
verified

Exam 13: B: Fiscal Policy, Deficits, Surpluses, and Debt

Correct AnswerverifiedShow Answer

Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, the marginal propensity to consume is:

Correct AnswerverifiedShow Answer

Refer to the above data.If a 10 percent proportional tax on income is imposed, the consumption schedule will now be:

Correct AnswerverifiedShow Answer

Refer to the above diagram where T is tax revenues and G is government expenditures.All figures are in billions of dollars.If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the actual budget deficit is:

Correct AnswerverifiedShow Answer

Refer to the above graph.If interest rates increased by 2 percentage points, what event would most likely counteract the crowding-out effect?

Correct AnswerverifiedShow Answer

The greater the progressiveness of the tax system, the less is the built-in stability of the economy.

Correct AnswerverifiedShow Answer

An appropriate fiscal policy for severe demand-pull inflation is:

Correct AnswerverifiedShow Answer

One reason the public debt will not bankrupt the Federal government is that the:

Correct AnswerverifiedShow Answer

A major reason that a public debt cannot bankrupt the Federal government is because:

Correct AnswerverifiedShow Answer

Refer to the above diagram where T is tax revenues and G is government expenditures.All figures are in billions of dollars.If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the full-employment or cyclically adjusted deficit is:

Correct AnswerverifiedShow Answer

If government increases the size of its full-employment surplus, we can:

Correct AnswerverifiedShow Answer

An increase in taxes would be an expansionary fiscal policy.

Correct AnswerverifiedShow Answer

As a percent of GDP, Canada's public debt is:

Correct AnswerverifiedShow Answer

Refer to the above diagram.Which tax system has the least built-in stability?

Correct AnswerverifiedShow Answer

Other things equal, the stock of capital inherited by future generations is likely to be smaller when government spending:

Correct AnswerverifiedShow Answer

The "crowding out" effect suggests that:

Correct AnswerverifiedShow Answer

If fiscal policy leads to higher interest rates, the dollar may appreciate and net exports fall.

Correct AnswerverifiedShow Answer

With a regressive tax system, as the level of income increases in an economy, the average tax rate will:

Correct AnswerverifiedShow Answer

Who among the following owned the smallest percentage of Canada's public debt in 2016, using Figure 13-7?

Correct AnswerverifiedShow Answer

The net export effect may partially counteract an expansionary fiscal policy.

Correct AnswerverifiedShow Answer

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