Question 1

If the government adopts a fiscal policy that is:

Accepted Answer

A)  expansionary, then net exports are likely to expand and reinforce the effects of the fiscal policy.
B)  contractionary, then net exports are likely to decline and partially offset the effects of the fiscal policy.
C)  contractionary, then net exports are likely to rise and reinforce the effects of the fiscal policy.
D)  expansionary, then net exports are likely to decline and partially offset the effects of the fiscal policy.E) B) and C)
F) A) and D)

Question 2

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

Question 3

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 4

In an aggregate demand and aggregate supply graph, a contractionary fiscal policy can be illustrated by a:

Accepted Answer

A)  leftward shift in the aggregate demand curve.
B)  rightward shift in the aggregate demand curve.
C)  rightward shift in the aggregate supply curve.
D)  movement along an existing aggregate supply curve.E) A) and D)
F) A) and C)

Question 5

What percentage of the public debt is held by foreign individuals and institutions?

Accepted Answer

A)  22 percent
B)  2 percent
C)  70 percent
D)  90 percentE) All of the above
F) A) and C)

Question 6

The higher domestic interest rate resulting from an expansionary fiscal policy in Canada will tend to:

Accepted Answer

A)  increase domestic investment spending.
B)  increase Canadian exports.
C)  increase domestic consumption spending.
D)  decrease Canadian exports.E) None of the above
F) A) and B)

Question 7

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

Question 8

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

Question 9

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 10

Expansionary fiscal policy will do what to the government budget, assuming that was balanced at the start?

Accepted Answer

A)  A budget deficit
B)  A budget surplus
C)  A decrease in government borrowing costs
D)  An increase in personal taxesE) A) and D)
F) B) and C)

Question 11

A net export effect may partially reinforce an expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 12

Due to automatic stabilizers, when income decreases, government transfer spending:

Accepted Answer

A)  increases and tax revenues decrease.
B)  decreases and tax revenues increase.
C)  and tax revenues decrease.
D)  and tax revenues increase.E) A) and B)
F) A) and C)

Question 13

The crowding-out effect of borrowing to finance the public debt:

Accepted Answer

A)  decreases current spending for private investment.
B)  increases the privately owned stock of real capital.
C)  decreases the economic burden on future generations.
D)  increases incentives to work and save.E) B) and C)
F) A) and B)

Question 14

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

Question 15

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

Question 16

The greatest expansionary impact of a budget deficit will occur when the:

Accepted Answer

A)  government finances the deficit by obtaining newly printed money.
B)  government borrows the money from the general public.
C)  economy is operating in the intermediate range of its aggregate supply curve.
D)  marginal propensity to save for the economy is high.E) None of the above
F) C) and D)

Question 17

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

Question 18

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 19

The actual budget deficit of an economy was about $30 billion in 2013.On the basis of this information, it:

Accepted Answer

A)  can be concluded that the economy faced severe inflation in 2013.
B)  cannot be determined whether the fiscal policy implemented by the government in 2013 was expansionary or contractionary.
C)  can be concluded that the fiscal policy implemented by the government in 2013 was contractionary.
D)  can be concluded that the fiscal policy implemented by the government in 2013 was expansionary.E) A) and B)
F) A) and C)

Question 20

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

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

The actual budget deficit of an economy was about $30 billion in 2013.On the basis of this information, it:

Correct Answer
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The crowding-out effect of borrowing to finance the public debt:

Correct Answer
verified

Due to automatic stabilizers, when income decreases, government transfer spending:

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

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

Expansionary fiscal policy will do what to the government budget, assuming that was balanced at the start?

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

What percentage of the public debt is held by foreign individuals and institutions?

Correct Answer
verified

A net export effect may partially reinforce an expansionary fiscal policy.

Correct Answer
verified

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

Correct Answer
verified

In an aggregate demand and aggregate supply graph, a contractionary fiscal policy can be illustrated by a:

Correct Answer
verified

If the government adopts a fiscal policy that is:

Correct Answer
verified

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

Correct Answer
verified

The higher domestic interest rate resulting from an expansionary fiscal policy in Canada will tend to:

Correct Answer
verified

The greatest expansionary impact of a budget deficit will occur when the:

Correct Answer
verified

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

Correct Answer
verified

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

The actual budget deficit of an economy was about $30 billion in 2013.On the basis of this information, it:

Correct AnswerverifiedShow Answer

The crowding-out effect of borrowing to finance the public debt:

Correct AnswerverifiedShow Answer

Due to automatic stabilizers, when income decreases, government transfer spending:

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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

Expansionary fiscal policy will do what to the government budget, assuming that was balanced at the start?

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

What percentage of the public debt is held by foreign individuals and institutions?

Correct AnswerverifiedShow Answer

A net export effect may partially reinforce an expansionary fiscal policy.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In an aggregate demand and aggregate supply graph, a contractionary fiscal policy can be illustrated by a:

Correct AnswerverifiedShow Answer

If the government adopts a fiscal policy that is:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The higher domestic interest rate resulting from an expansionary fiscal policy in Canada will tend to:

Correct AnswerverifiedShow Answer

The greatest expansionary impact of a budget deficit will occur when the:

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

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