Question 1

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 2

Proponents of the notion of a "political business cycle" suggest that:

Accepted Answer

A)  the cyclically adjusted budget is a better indicator of the state of the economy than the actual budget.
B)  cyclical swings in the economy are produced by the inherent instability found in capitalist economies.
C)  a possible cause of economic fluctuations is due to the use of fiscal policy for political purposes.
D)  there is a trade-off among goals that tends to make the economic policies of state and local governments pro-cyclical.E) A) and B)
F) None of the above

Question 3

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

Accepted Answer

A)  decrease.
B)  increase.
C)  remain the same.
D)  either decrease, increase, or remain the same.E) A) and C)
F) All of the above

Question 4

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 5

An expansionary fiscal policy in Canada which drives up Canadian interest rates is most likely to:

Accepted Answer

A)  decrease the foreign demand for dollars and appreciate the international value of the dollar.
B)  decrease the foreign demand for dollars and depreciate the international value of the dollar.
C)  increase the foreign demand for dollars and appreciate the international value of the dollar.
D)  increase the foreign demand for dollars and depreciate the international value of the dollar.E) C) and D)
F) B) and D)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Refer to the above diagram wherein T is tax revenues and G is government expenditures.All figures are in billions.This diagram portrays the notion of:

Accepted Answer

A)  regressive tax system.
B)  built-in stability.
C)  a balanced-budget.
D)  discretionary fiscal policy.E) A) and B)
F) A) and C)

Question 8

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) None of the above
F) C) and D)

Question 9

The more progressive the tax system, the:

Accepted Answer

A)  less is the built-in stability for the economy.
B)  greater is the built-in stability for the economy.
C)  less is the effect of crowding-out on the economy.
D)  greater is the severity of business fluctuations on the economy.E) All of the above
F) A) and B)

Question 10

An effective expansionary fiscal policy will:

Accepted Answer

A)  not change the size of full-employment deficit.
B)  reduce a full-employment deficit.
C)  increase the full-employment deficit.
D)  always result in a balanced budget once full-employment is achieveE) B) and C)
F) A) and C)

Question 11

In an economy, the government wants to increase aggregate demand by $48 billion at each price level to increase real GDP and reduce unemployment.If the MPC is .75, then it could:

Accepted Answer

A)  reduce taxes by $12 billion.
B)  reduce taxes by $16 billion.
C)  reduce government spending by $12 billion.
D)  increase government spending by $18 billion.E) A) and D)
F) B) and C)

Question 12

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) B) and C)
F) All of the above

Question 13

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) B) and C)
F) A) and D)

Question 14

An expansionary fiscal policy can be partially offset by a(n) :

Accepted Answer

A)  increase in aggregate demand.
B)  increase in aggregate supply.
C)  depreciation of the dollar.
D)  decrease in net exports.E) All of the above
F) C) and D)

Question 15

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) B) and C)
F) A) and D)

Question 16

A contractionary fiscal policy shifts the aggregate demand curve leftward and may or may not reduce real GDP.

Accepted Answer

A) True 
 B)False

Question 17

If the Federal government wants to finance a budget deficit in the least expansionary way, which of the following actions would be most appropriate?

Accepted Answer

A)  issuing new money
B)  reducing taxation
C)  increasing government spending
D)  borrowing from the money marketE) B) and C)
F) A) and C)

Question 18

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 19

The crowding-out effect from government borrowing to finance the public debt is reduced when:

Accepted Answer

A)  the economy is experiencing a period of high inflation.
B)  the economy is operating at the full-employment level of output.
C)  public investment complements private investment.
D)  the distribution of income becomes more equal.E) B) and C)
F) All of the above

Question 20

If the economy is to have automatic stabilizers, when real GDP rises:

Accepted Answer

A)  tax revenues should fall.
B)  tax revenues should rise.
C)  government spending should rise.
D)  government spending should fall.E) B) and D)
F) B) and C)

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

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

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

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A contractionary fiscal policy shifts the aggregate demand curve leftward and may or may not reduce real GDP.

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

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An expansionary fiscal policy can be partially offset by a(n) :

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

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If the economy is to have automatic stabilizers, when real GDP rises:

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The crowding-out effect from government borrowing to finance the public debt is reduced when:

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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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An expansionary fiscal policy in Canada which drives up Canadian interest rates is most likely to:

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The more progressive the tax system, the:

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If the Federal government wants to finance a budget deficit in the least expansionary way, which of the following actions would be most appropriate?

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An effective expansionary fiscal policy will:

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Fiscal policy is carried out primarily by:

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

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Proponents of the notion of a "political business cycle" suggest that:

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In an economy, the government wants to increase aggregate demand by $48 billion at each price level to increase real GDP and reduce unemployment.If the MPC is .75, then it could:

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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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Refer to the above diagram wherein T is tax revenues and G is government expenditures.All figures are in billions.This diagram portrays the notion of:

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Which of the following represents the most expansionary fiscal policy?

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