Question 1

The cyclically adjusted budget tells us:

Accepted Answer

A)   that in a full-employment economy the federal budget should be in balance.
B)   that tax revenues should vary inversely with GDP.
C)   what the size of the federal budget deficit or surplus would be if the economy was at full employment.
D)   the actual budget deficit or surplus realized in any given year.E) All of the above
F) A) and B)

Question 2

-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) A) and C)
F) A) and D)

Question 3

Like households and businesses, the provincial and municipal governments increase their expenditure during good times and cut them during recession. As a result of such a practice:

Accepted Answer

A)   the economic recession would be eliminated while the inflationary situation is worsened.
B)   the economic recession and or inflationary situation is worsened.
C)   the economic recession and or inflationary situation is more manageable.
D)   the economic recession and or inflationary situation is corrected.E) All of the above
F) A) and B)

Question 4

4 B)  T3 C)  T2 D)  T1" class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram. Which tax system has the most built-in stability?

Accepted Answer

A)   T4
B)   T3
C)   T2
D)   T1E) A) and B)
F) A) and C)

Question 5

Built-in stability is synonymous with discretionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 6

Within the aggregate demand and aggregate supply framework, fiscal policy that emphasizes activist government policies to stabilize the economy would view cutting personal income taxes as primarily a shift:

Accepted Answer

A)   right in the aggregate demand curve.
B)   left in the aggregate demand curve.
C)   right in the aggregate supply curve.
D)   left in the aggregate supply curve.E) B) and D)
F) B) and C)

Question 7

Foreign individuals and institutions hold about what percentage of the public debt?

Accepted Answer

A)   5 percent
B)   14 percent
C)   22 percent
D)   29 percentE) A) and D)
F) None of the above

Question 8

The crowding-out effect of an expansionary fiscal policy is likely to be fully or partially offset during a recession.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is an example of an automatic stabilizer? As real GDP decreases, income tax revenues:

Accepted Answer

A)   increase and transfer payments decrease.
B)   decrease and transfer payments increase.
C)   and transfer payments decrease.
D)   and transfer payments increase.E) A) and B)
F) A) and C)

Question 10

If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion at each price level by:

Accepted Answer

A)   reducing government expenditures by $12 billion.
B)   reducing government expenditures by $60 billion.
C)   increasing taxes by $15 billion.
D)   increasing taxes by $20 billion.E) All of the above
F) B) and D)

Question 11

-Refer to the above diagram wherein T is tax revenues and G is government expenditures. All figures are in billions. The tax system of this economy is such that:

Accepted Answer

A)   it is regressive.
B)   it is progressive.
C)   tax revenues equal 50 percent of GDP.
D)   it tends to destabilize the economy.E) A) and C)
F) All of the above

Question 12

If you are told that the government had an actual budget deficit of $50 billion, then you would:

Accepted Answer

A)   know that fiscal policy was expansionary.
B)   know that fiscal policy was contractionary.
C)   know that fiscal policy was producing a cyclical deficit.
D)   not be able to determine the direction of fiscal policy from the information given.E) C) and D)
F) A) and D)

Question 13

"Discretionary" fiscal policy is so named because it:

Accepted Answer

A)   is undertaken at the option of the nation's central bank.
B)   occurs automatically as the nation's level of GDP changes.
C)   involves specific changes in T and G undertaken expressly for stabilization purposes at the option of Parliament.
D)   none of the above.E) C) and D)
F) None of the above

Question 14

Assume the government incurs a budget deficit which is financed by borrowing. As a result, interest rates rise and the volume of private investment spending declines. This illustrates:

Accepted Answer

A)   the equation-of-exchange effect.
B)   the paradox of thrift.
C)   the crowding-out effect.
D)   the money-fund effect.E) A) and B)
F) C) and D)

Question 15

The actual and full-employment budgets will be equal when the economy is at full-employment.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following represents the most expansionary fiscal policy?

Accepted Answer

A)   a $10 billion tax cut
B)   a $10 billion increase in government spending
C)   a $10 billion tax increase
D)   a $10 billion decrease in government spendingE) A) and B)
F) All of the above

Question 17

Payment of interest on the public debt will:

Accepted Answer

A)   increase our current domestic standard of living.
B)   not have any effect on the distribution of income.
C)   probably decrease the income inequality.
D)   probably increase the income inequality.E) All of the above
F) A) and C)

Question 18

The average tax rate required to service the public debt is roughly measured by:

Accepted Answer

A)   the absolute size of the debt.
B)   the debt as a fraction of the GDP.
C)   interest on the debt as a proportion of the GDP.
D)   none of the above.E) All of the above
F) C) and D)

Question 19

Contractionary fiscal policy is so named because it:

Accepted Answer

A)   involves a contraction of the nation's money supply.
B)   necessarily reduces the size of government.
C)   is aimed at reducing aggregate demand and thus achieving price stability.
D)   is expressly designed to contract real GDP.E) A) and B)
F) B) and C)

Question 20

When the economy is at full employment:

Accepted Answer

A)   one cannot generalize in comparing the actual and the full-employment budgets.
B)   the full-employment budget will show a surplus and the actual budget will show a deficit.
C)   the actual budget will show a surplus and the full-employment budget will show a deficit.
D)   the actual and the full-employment budgets will be equal.E) B) and D)
F) A) and B)

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

Assume the government incurs a budget deficit which is financed by borrowing. As a result, interest rates rise and the volume of private investment spending declines. This illustrates:

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The actual and full-employment budgets will be equal when the economy is at full-employment.

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If you are told that the government had an actual budget deficit of $50 billion, then you would:

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

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Like households and businesses, the provincial and municipal governments increase their expenditure during good times and cut them during recession. As a result of such a practice:

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The cyclically adjusted budget tells us:

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Which of the following represents the most expansionary fiscal policy?

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Foreign individuals and institutions hold about what percentage of the public debt?

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When the economy is at full employment:

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

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Payment of interest on the public debt will:

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Which of the following is an example of an automatic stabilizer? As real GDP decreases, income tax revenues:

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If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion at each price level by:

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The crowding-out effect of an expansionary fiscal policy is likely to be fully or partially offset during a recession.

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-Refer to the above diagram wherein T is tax revenues and G is government expenditures. All figures are in billions. The tax system of this economy is such that:

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The average tax rate required to service the public debt is roughly measured by:

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Built-in stability is synonymous with discretionary fiscal policy.

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Within the aggregate demand and aggregate supply framework, fiscal policy that emphasizes activist government policies to stabilize the economy would view cutting personal income taxes as primarily a shift:

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Contractionary fiscal policy is so named because it:

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"Discretionary" fiscal policy is so named because it:

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