Question 1

-Refer to the above diagram wherein T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400:

Accepted Answer

A)   there will be a budget deficit.
B)   there will be a budget surplus.
C)   the budget will be balanced.
D)   the macroeconomy will be in equilibrium.E) B) and D)
F) A) and B)

Question 2

Which of the following statements is correct?

Accepted Answer

A)   Built-in stability only partially offsets fluctuations in economic activity.
B)   Built-in stability works in halting inflation, but it cannot alleviate unemployment.
C)   Built-in stability can be relied on to eliminate completely any fluctuation in economic activity.
D)   Built-in stability overcorrects for fluctuations in economic activity; for example, it may change a small expansion into a recession.E) A) and B)
F) A) and C)

Question 3

The actual budget may be in deficit while the full-employment budget is in surplus.

Accepted Answer

A) True 
 B)False

Question 4

In an economy, the government wants to increase aggregate demand by $60 billion at each price level to increase real GDP and reduce unemployment. If the MPC is .9, then it could:

Accepted Answer

A)   decrease taxes by $6 billion.
B)   decrease taxes by $12 billion.
C)   increase government spending by $6 billion.
D)   increase government spending by $12 billion.E) B) and D)
F) B) and C)

Question 5

The payment of interest on the public debt probably decreases income inequality.

Accepted Answer

A) True 
 B)False

Question 6

Discretionary fiscal policy refers to:

Accepted Answer

A)   any change in government spending or taxes which destabilizes the economy.
B)   the authority which Parliament has to change personal income tax rates.
C)   changes in taxes and government expenditures made by Parliament to stabilize the economy.
D)   the changes in taxes and transfers which occur as GDP changes.E) A) and D)
F) None of the above

Question 7

Which of the following is the best example of public investment?

Accepted Answer

A)   salaries of members of Parliament
B)   government expenditures on paper clips
C)   construction of highways
D)   funding of regulatory agenciesE) A) and D)
F) A) and C)

Question 8

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion at each price level by:

Accepted Answer

A)   increasing government spending by $4 billion.
B)   increasing government spending by $40 billion.
C)   decreasing taxes by $4 billion.
D)   increasing taxes by $4 billion.E) B) and D)
F) B) and C)

Question 9

The table below shows the full-employment budget surplus as a percentage of GDP over a five-year period.  Refer to the above information. In which year was fiscal policy contractionary?

Accepted Answer

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

Question 10

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:

Accepted Answer

A)   shift the AD curve to the right.
B)   increase the equilibrium GDP.
C)   not affect the AD curve.
D)   shift the AD curve to the left.E) None of the above
F) C) and D)

Question 11

Automatic stabilizers will reduce tax revenues during recessions and increase tax revenues during periods of strong economic growth.

Accepted Answer

A) True 
 B)False

Question 12

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is .25, then it could:

Accepted Answer

A)   increase taxes by $16 billion.
B)   increase taxes by $24 billion.
C)   decrease government spending by $10 billion.
D)   decrease government spending by $16 billion.E) A) and D)
F) A) and C)

Question 13

The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes:

Accepted Answer

A)   the supply-side effects of fiscal policy.
B)   built-in stability.
C)   the crowding-out effect.
D)   the net export effect.E) C) and D)
F) B) and D)

Question 14

A decrease in government spending and taxes would be an example of fiscal policies that reinforce each other.

Accepted Answer

A) True 
 B)False

Question 15

Fiscal policy refers to the:

Accepted Answer

A)   manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.
B)   manipulation of government spending and taxes to achieve greater equality in the distribution of income.
C)   altering of the interest rate to change aggregate demand.
D)   fact that equal increases in government spending and taxation will be contractionary.E) None of the above
F) A) and D)

Question 16

A decrease in government spending is one of the options that can be used to pursue a contractionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 17

Fiscal policy is carried out primarily by:

Accepted Answer

A)   the federal government.
B)   provincial and local governments working together.
C)   provincial governments alone.
D)   local governments alone.E) A) and B)
F) A) and C)

Question 18

-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, we can conclude that the tax:

Accepted Answer

A)   enhances the economy's built-in stability.
B)   reduces the economy's built-in stability.
C)   neither increases nor decreases built-in stability.
D)   increases the MPC and therefore increases the size of the multiplier.E) B) and D)
F) All of the above

Question 19

Refer to the diagram below. If the full employment level of GDP for this economy is at H, the:

Accepted Answer

A)   cyclically adjusted budget will produce a surplus.
B)   cyclically adjusted budget will produce a deficit.
C)   actual budget will produce a deficit.
D)   actual budget will produce a surplus.E) B) and D)
F) B) and C)

Question 20

In Year 1, the actual budget deficit was $150 billion and the cyclically adjusted deficit was $125 billion. In Year 2, the actual budget deficit was $125 billion and the cyclically adjusted deficit was $100 billion. It can be concluded that fiscal policy from Year 1 to Year 2 was:

Accepted Answer

A)   proportional.
B)   progressive.
C)   contractionary.
D)   expansionary.E) A) and C)
F) A) and B)

Exam 11: Fiscal Policy, Deficits, Surpluses, and Debt

In an economy, the government wants to increase aggregate demand by $60 billion at each price level to increase real GDP and reduce unemployment. If the MPC is .9, then it could:

Correct AnswerverifiedShow Answer

A decrease in government spending and taxes would be an example of fiscal policies that reinforce each other.

Correct AnswerverifiedShow Answer

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion at each price level by:

Correct AnswerverifiedShow Answer

Which of the following is the best example of public investment?

Correct AnswerverifiedShow Answer

-Refer to the above diagram wherein T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400:

Correct AnswerverifiedShow Answer

In Year 1, the actual budget deficit was $150 billion and the cyclically adjusted deficit was $125 billion. In Year 2, the actual budget deficit was $125 billion and the cyclically adjusted deficit was $100 billion. It can be concluded that fiscal policy from Year 1 to Year 2 was:

Correct AnswerverifiedShow Answer

The actual budget may be in deficit while the full-employment budget is in surplus.

Correct AnswerverifiedShow Answer

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:

Correct AnswerverifiedShow Answer

The table below shows the full-employment budget surplus as a percentage of GDP over a five-year period. Refer to the above information. In which year was fiscal policy contractionary?

Correct AnswerverifiedShow Answer

Discretionary fiscal policy refers to:

Correct AnswerverifiedShow Answer

Fiscal policy refers to the:

Correct AnswerverifiedShow Answer

A decrease in government spending is one of the options that can be used to pursue a contractionary fiscal policy.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The payment of interest on the public debt probably decreases income inequality.

Correct AnswerverifiedShow Answer

Fiscal policy is carried out primarily by:

Correct AnswerverifiedShow Answer

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is .25, then it could:

Correct AnswerverifiedShow Answer

Automatic stabilizers will reduce tax revenues during recessions and increase tax revenues during periods of strong economic growth.

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, we can conclude that the tax:

Correct AnswerverifiedShow Answer

Refer to the diagram below. If the full employment level of GDP for this economy is at H, the:

Correct AnswerverifiedShow Answer

The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified