Question 1

The "crowding-out effect" suggests that:

Accepted Answer

A)   tax increases are paid primarily out of saving and therefore are not an effective fiscal device.
B)   increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
C)   it is very difficult to have excessive aggregate spending in our economy.
D)   consumer and investment spending always vary inversely.E) A) and C)
F) B) and C)

Question 2

In an economy, the government wants to decrease aggregate demand by $24 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPC is .75, then it could increase taxes by:

Accepted Answer

A)   $6 billion.
B)   $8 billion.
C)   $10 billion.
D)   $12 billion.E) B) and D)
F) A) and C)

Question 3

If government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this would be called a(n) :

Accepted Answer

A)   discretionary fiscal policy.
B)   expansionary fiscal policy.
C)   political business cycle.
D)   nondiscretionary fiscal policy.E) All of the above
F) A) and B)

Question 4

The largest proportion of the public debt is held by:

Accepted Answer

A)   the Canadian public (individuals, businesses, financial institutions, etc.) .
B)   foreign individuals and institutions.
C)   our central banks.
D)   governmental agencies.E) A) and C)
F) All of the above

Question 5

-Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the cyclical deficit is:

Accepted Answer

A)   $40 billion.
B)   $20 billion.
C)   zero.
D)   $60 billion.E) B) and C)
F) A) and D)

Question 6

The crowding-out effect occurs when an expansionary fiscal policy increases the interest rate, decreases investment spending, and weakens fiscal policy.

Accepted Answer

A) True 
 B)False

Question 7

The federal budget deficit is found by:

Accepted Answer

A)   subtracting government tax revenues plus government borrowing from government spending in a particular year.
B)   subtracting government tax revenues from government spending in a particular year.
C)   cumulating the differences between government spending and tax revenues over all years since the nation's founding.
D)   subtracting government revenues from the non-investment-type government spending in a particular year.E) A) and C)
F) A) and B)

Question 8

As a percent of GDP, Canada's public debt is:

Accepted Answer

A)   the fourth highest among major industrial nations.
B)   one of the lowest among major industrial nations.
C)   in the high range of debts compared to major industrial nations.
D)   higher than that of the United States, but lower than that of Germany.E) B) and D)
F) None of the above

Question 9

Actions by the Federal government that decrease the progressiveness of the tax system:

Accepted Answer

A)   decrease the amount of government spending.
B)   increase the effects of automatic stabilizers.
C)   decrease the effects of automatic stabilizers.
D)   increase the amount of taxation.E) A) and B)
F) B) and C)

Question 10

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 D)
F) A) and D)

Question 11

During the last decade, the gross federal public debt has:

Accepted Answer

A)   increased substantially.
B)   increased as a percentage of the GDP.
C)   increased slightly.
D)   decreased as a percentage of the GDP, but began to rise again in 2009 as a percentage of GDP.E) C) and D)
F) A) and B)

Question 12

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

Question 13

The key to assessing the direction of discretionary fiscal policy is to observe changes in the full-employment deficit.

Accepted Answer

A) True 
 B)False

Question 14

-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 15

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of:

Accepted Answer

A)   impounding.
B)   built-in stability.
C)   money creation.
D)   the full-employment budget.E) B) and D)
F) A) and C)

Question 16

You are given the following information about aggregate demand at the existing price level for an economy: (1)  consumption = $500 billion; (2)  investment = $50 billion; (3)  government purchases = $100 billion; and (4)  net export = $20 billion. If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with the goal of achieving price level stability?

Accepted Answer

A)   increase government spending and taxes
B)   decrease government spending and taxes
C)   decrease government spending and increase taxes
D)   increase government spending and decrease taxesE) A) and D)
F) None of the above

Question 17

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

Question 18

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

Question 19

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

Question 20

Economists refer to a budget deficit which exists when the economy is achieving full employment as a:

Accepted Answer

A)   cyclical deficit.
B)   surplus in the full-employment budget.
C)   natural deficit.
D)   cyclically adjusted deficit.E) B) and C)
F) None of the above

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

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

Correct Answer
verified

-Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the cyclical deficit is:

Correct Answer
verified

As a percent of GDP, Canada's public debt is:

Correct Answer
verified

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

Correct Answer
verified

The largest proportion of the public debt is held by:

Correct Answer
verified

In an economy, the government wants to decrease aggregate demand by $24 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPC is .75, then it could increase taxes by:

Correct Answer
verified

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of:

Correct Answer
verified

During the last decade, the gross federal public debt has:

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

The federal budget deficit is found by:

Correct Answer
verified

If government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this would be called a(n) :

Correct Answer
verified

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

Correct Answer
verified

The "crowding-out effect" suggests that:

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

Actions by the Federal government that decrease the progressiveness of the tax system:

Correct Answer
verified

Correct Answer
verified

The crowding-out effect occurs when an expansionary fiscal policy increases the interest rate, decreases investment spending, and weakens fiscal policy.

Correct Answer
verified

Economists refer to a budget deficit which exists when the economy is achieving full employment as a:

Correct Answer
verified

The key to assessing the direction of discretionary fiscal policy is to observe changes in the full-employment deficit.

Correct Answer
verified

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

Correct Answer
verified

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

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

Correct AnswerverifiedShow Answer

-Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the cyclical deficit is:

Correct AnswerverifiedShow Answer

As a percent of GDP, Canada's public debt is:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The largest proportion of the public debt is held by:

Correct AnswerverifiedShow Answer

In an economy, the government wants to decrease aggregate demand by $24 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPC is .75, then it could increase taxes by:

Correct AnswerverifiedShow Answer

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of:

Correct AnswerverifiedShow Answer

During the last decade, the gross federal public debt has:

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

The federal budget deficit is found by:

Correct AnswerverifiedShow Answer

If government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this would be called a(n) :

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The "crowding-out effect" suggests that:

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

Actions by the Federal government that decrease the progressiveness of the tax system:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The crowding-out effect occurs when an expansionary fiscal policy increases the interest rate, decreases investment spending, and weakens fiscal policy.

Correct AnswerverifiedShow Answer

Economists refer to a budget deficit which exists when the economy is achieving full employment as a:

Correct AnswerverifiedShow Answer

The key to assessing the direction of discretionary fiscal policy is to observe changes in the full-employment deficit.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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