Question 1

An appropriate fiscal policy for severe demand-pull inflation is:

Accepted Answer

A)   an increase in government spending.
B)   depreciation of the dollar.
C)   a reduction in interest rates.
D)   a tax rate increase.E) B) and C)
F) A) and D)

Question 2

Other things being equal,which of the policies will have the most expansionary effect on the economy?

Accepted Answer

A)   a balanced budget
B)   a budget surplus held as an idle money balance
C)   a budget deficit financed by creating new money
D)   a budget surplus used for debt retirementE) B) and D)
F) A) and C)

Question 3

If the full-employment deficit as a percentage of GDP is zero in one year,and 1 percent of GDP the next year,it can be concluded that:

Accepted Answer

A)   fiscal policy is expansionary.
B)   fiscal policy is contractionary.
C)   the federal government is borrowing money.
D)   the federal government is lending money.E) A) and B)
F) A) and C)

Question 4

If the government wishes to increase the level of real GDP,it might reduce:

Accepted Answer

A)   taxes.
B)   transfer payments.
C)   the size of the budget deficit.
D)   its purchases of goods and services.E) None of the above
F) A) and D)

Question 5

The Federal budget deficit is calculated each year by:

Accepted Answer

A)   subtracting government spending from government revenues.
B)   subtracting consumption and investment from government spending.
C)   adding up consumption,investment,government purchases,and net exports.
D)   adding up the difference between government revenues and spending over the years of the nation's existence.E) None of the above
F) A) and D)

Question 6

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

Question 7

-Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP) of $40 is now imposed in this economy,the consumption schedule will be:

Accepted Answer

A)   Column A
B)   Column B
C)   Column C
D)   Column DE) A) and B)
F) B) and D)

Question 8

If taxation becomes more progressive,the built-in stability in the economy will increase.

Accepted Answer

A) True 
 B)False

Question 9

The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

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

Question 12

Refer to the data below.If year 1 is the first year of this nation's existence and year 4 is the present year,the public debt as a percentage of GDP in year 4 is: The following budget information is for a hypothetical economy.All data are in billions of dollars.

Accepted Answer

A)   7.5 percent.
B)   1.39 percent.
C)   2.5 percent.
D)   3.9 percent.E) None of the above
F) All of the above

Question 13

The greater the progressiveness of the tax system,the less is the built-in stability of the economy.

Accepted Answer

A) True 
 B)False

Question 14

-Refer to the above graph.If the economy was initially in equilibrium at point 3 and interest rates increase by 4 percentage points,then the crowding-out effect would be:

Accepted Answer

A)   $10 billion in investment.
B)   $20 billion in investment.
C)   $30 billion in investment.
D)   $35 billion in investment.E) C) and D)
F) A) and C)

Question 15

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

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

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) None of the above
F) All of the above

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Which set of fiscal policies would tend to offset each other?

Accepted Answer

A)   a decrease in government spending and taxes
B)   a decrease in government spending and no change in taxes
C)   an increase in government spending and a decrease in taxes
D)   a decrease in government spending and an increase in taxesE) A) and B)
F) A) and C)

Question 20

-In the above diagram,tax revenues vary:

Accepted Answer

A)   directly with the level of GDP.
B)   inversely with the level of GDP.
C)   directly with the level of government spending.
D)   inversely with the level of government spending.E) All of the above
F) B) and C)

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

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

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If the full-employment deficit as a percentage of GDP is zero in one year,and 1 percent of GDP the next year,it can be concluded that:

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The Federal budget deficit is calculated each year by:

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

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-In the above diagram,tax revenues vary:

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-Refer to the above graph.If the economy was initially in equilibrium at point 3 and interest rates increase by 4 percentage points,then the crowding-out effect would be:

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The greater the progressiveness of the tax system,the less is the built-in stability of the economy.

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

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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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An appropriate fiscal policy for severe demand-pull inflation is:

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The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

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Which set of fiscal policies would tend to offset each other?

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Discretionary fiscal policy is so named because it:

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If taxation becomes more progressive,the built-in stability in the economy will increase.

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-Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP) of $40 is now imposed in this economy,the consumption schedule will be:

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

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Other things being equal,which of the policies will have the most expansionary effect on the economy?

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Refer to the data below.If year 1 is the first year of this nation's existence and year 4 is the present year,the public debt as a percentage of GDP in year 4 is: The following budget information is for a hypothetical economy.All data are in billions of dollars.

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If the government wishes to increase the level of real GDP,it might reduce:

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