Question 1

Discretionary fiscal policy will stabilize the economy most when:

Accepted Answer

A)   deficits are incurred during recessions and surpluses during inflations.
B)   the budget is balanced each year.
C)   deficits are incurred during inflations and surpluses during recessions.
D)   budget surpluses are continuously incurred.E) A) and C)
F) All of the above

Question 2

-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) All of the above
F) A) and C)

Question 3

Which one of the following might offset a crowding-out effect of an increase in government spending financed through expansion of the public debt?

Accepted Answer

A)   a decline in net exports
B)   an improvement in business profit expectations
C)   a decrease in the money supply
D)   a decline in public investmentE) B) and C)
F) A) and B)

Question 4

A cyclically adjusted budget deficit is also called a:

Accepted Answer

A)   full- employment deficit.
B)   cyclical deficit.
C)   recession-caused deficit.
D)   built-in stabilizer.E) All of the above
F) None of the above

Question 5

The direction of discretionary fiscal policy cannot be examined by a simple look at the changes in the actual budget deficits or surpluses.This is because:

Accepted Answer

A)   those changes may reflect the changes in the general price level.
B)   those changes may reflect automatic changes in the tax revenues as a result of change in GDP.
C)   those changes may reflect the changes in the tax revenues as a result of change in imports.
D)   it is impossible to calculate the changes in the actual budget deficits or surpluses.E) B) and C)
F) A) and D)

Question 6

Some economists believe the budget deficit is directly linked to the trade deficit through real interest rates and the international value of the dollar.

Accepted Answer

A) True 
 B)False

Question 7

An expansionary fiscal policy in Canada might unintentionally cause demand-pull inflation if:

Accepted Answer

A)   the dollar unexpectedly appreciates while the expansionary policy is in place.
B)   the dollar unexpectedly depreciates while the expansionary policy is in place.
C)   the policy produces severe crowding out.
D)   our trading partners experience recession during the time of the fiscal policy action.E) A) and B)
F) B) and D)

Question 8

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 B)
F) None of the above

Question 9

-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 C)

Question 10

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

Question 11

Built-in stability refers to the fact that net tax revenues vary inversely with the level of GDP.

Accepted Answer

A) True 
 B)False

Question 12

(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 operational 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) A) and B)
F) A) and C)

Question 13

(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.
-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 D)
F) All of the above

Question 14

If the MPS in an economy is .4,government could shift the aggregate demand curve leftward by $50 billion at each price level by:

Accepted Answer

A)   reducing government expenditures by $125 billion.
B)   reducing government expenditures by $20 billion.
C)   increasing taxes by $50 billion.
D)   increasing taxes by $250 billion.E) A) and B)
F) A) and C)

Question 15

-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 C)
F) B) and C)

Question 16

If the MPC in an economy is .8,government could shift the aggregate demand curve rightward by $100 billion at each price level by:

Accepted Answer

A)   increasing government spending by $25 billion.
B)   increasing government spending by $80 billion.
C)   decreasing taxes by $25 billion.
D)   decreasing taxes by $100 billion.E) None of the above
F) B) and C)

Question 17

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 C)
F) All of the above

Question 18

Which combination of fiscal policy actions would most likely be offsetting?

Accepted Answer

A)   increase in taxes and government spending
B)   decrease in taxes and increase in government spending
C)   increase in taxes,but make no change in government spending
D)   decrease in taxes,but make no change in government spendingE) A) and B)
F) A) and C)

Question 19

-Refer to the above diagram.Automatic stability in this economy could be decreased by:

Accepted Answer

A)   shifting the government expenditure line upward but parallel to its current position.
B)   changing the tax system so that the tax line is shifted upward but parallel to its present position.
C)   changing the government expenditures line so that it has a negative slope.
D)   changing the tax system so that the tax line has a flatter slope.E) C) and D)
F) All of the above

Question 20

The crowding-out effect refers to the possibility that deficit spending may lead people to increase their saving in anticipation of higher future taxes.

Accepted Answer

A) True 
 B)False

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

Discretionary fiscal policy will stabilize the economy most when:

Correct Answer
verified

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

Correct Answer
verified

Built-in stability refers to the fact that net tax revenues vary inversely with the level of GDP.

Correct Answer
verified

Correct Answer
verified

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,we can conclude that the tax:

Correct Answer
verified

A cyclically adjusted budget deficit is also called a:

Correct Answer
verified

Some economists believe the budget deficit is directly linked to the trade deficit through real interest rates and the international value of the dollar.

Correct Answer
verified

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 Answer
verified

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 Answer
verified

Which one of the following might offset a crowding-out effect of an increase in government spending financed through expansion of the public 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

Which combination of fiscal policy actions would most likely be offsetting?

Correct Answer
verified

If the MPC in an economy is .8,government could shift the aggregate demand curve rightward by $100 billion at each price level by:

Correct Answer
verified

An expansionary fiscal policy in Canada might unintentionally cause demand-pull inflation if:

Correct Answer
verified

If the MPS in an economy is .4,government could shift the aggregate demand curve leftward by $50 billion at each price level by:

Correct Answer
verified

The direction of discretionary fiscal policy cannot be examined by a simple look at the changes in the actual budget deficits or surpluses.This is because:

Correct Answer
verified

-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:

Correct Answer
verified

-Refer to the above diagram.Automatic stability in this economy could be decreased by:

Correct Answer
verified

The crowding-out effect refers to the possibility that deficit spending may lead people to increase their saving in anticipation of higher future taxes.

Correct Answer
verified

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

Discretionary fiscal policy will stabilize the economy most when:

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

Built-in stability refers to the fact that net tax revenues vary inversely with the level of GDP.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

A cyclically adjusted budget deficit is also called a:

Correct AnswerverifiedShow Answer

Some economists believe the budget deficit is directly linked to the trade deficit through real interest rates and the international value of the dollar.

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

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 one of the following might offset a crowding-out effect of an increase in government spending financed through expansion of the public 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

Which combination of fiscal policy actions would most likely be offsetting?

Correct AnswerverifiedShow Answer

If the MPC in an economy is .8,government could shift the aggregate demand curve rightward by $100 billion at each price level by:

Correct AnswerverifiedShow Answer

An expansionary fiscal policy in Canada might unintentionally cause demand-pull inflation if:

Correct AnswerverifiedShow Answer

If the MPS in an economy is .4,government could shift the aggregate demand curve leftward by $50 billion at each price level by:

Correct AnswerverifiedShow Answer

The direction of discretionary fiscal policy cannot be examined by a simple look at the changes in the actual budget deficits or surpluses.This is because:

Correct AnswerverifiedShow Answer

-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:

Correct AnswerverifiedShow Answer

-Refer to the above diagram.Automatic stability in this economy could be decreased by:

Correct AnswerverifiedShow Answer

The crowding-out effect refers to the possibility that deficit spending may lead people to increase their saving in anticipation of higher future taxes.

Correct AnswerverifiedShow Answer

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