Question 1

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) C) and D)

Question 2

Refer to the above graph.The crowding-out effect would be illustrated by a:

Accepted Answer

A)  shift from curve A to curve B leading to a decrease in investment.
B)  shift from curve B to curve A leading to a decrease in interest rates.
C)  movement from point 1 to point 2 on curve A leading to a decrease in investment.
D)  movement from point 2 to point 1 on curve A leading to a decrease in investment.E) B) and C)
F) A) and B)

Question 3

Contractionary 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)  An increase in interest rates
D)  A decrease in personal taxesE) All of the above
F) A) and C)

Question 4

In an aggregate demand and aggregate supply graph, an expansionary 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)  leftward shift in the aggregate supply curve.
D)  change in the price level.E) A) and B)
F) A) and C)

Question 5

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 6

Assume the economy is in the midst of a severe recession.Which of the following policies would be consistent with discretionary fiscal policy?

Accepted Answer

A)  a Parliamentary proposal to incur a federal surplus to be used for the retirement of public debt
B)  a reduction in agricultural subsidies and veterans' benefits
C)  a postponement of a highway construction program
D)  a reduction in federal tax rates on personal and corporate incomeE) A) and C)
F) A) and B)

Question 7

The crowding-out of investment may be avoided if a budget deficit is financed by issuing new money.

Accepted Answer

A) True 
 B)False

Question 8

In Year 1, the actual budget deficit was $150 billion and the cyclically adjusted deficit was $125 billion.In Year 2, the actual budget deficit was $125 billion and the cyclically adjusted deficit was $100 billion.It can be concluded that fiscal policy from Year 1 to Year 2 was:

Accepted Answer

A)  proportional.
B)  progressive.
C)  contractionary.
D)  expansionary.E) A) and B)
F) A) and C)

Question 9

Which of the following phases of a business cycle generates cyclical deficit (a movement from a surplus to a deficit)  as a by-product?

Accepted Answer

A)  Recession
B)  Trough
C)  Expansion
D)  PeakE) A) and C)
F) A) and B)

Question 10

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 D)
F) B) and C)

Question 11

Suppose that in an economy with a MPC of .5 the government wanted to shift the aggregate demand curve rightward by $80 billion at each price level to expand real GDP.It could:

Accepted Answer

A)  reduce taxes by $160 billion.
B)  increase government spending by $80 billion.
C)  reduce taxes by $40 billion.
D)  increase government spending by $40 billion.E) None of the above
F) B) and D)

Question 12

Using Image 13.2 Global Perspective, which of the following countries had the lowest public debt as a percentage of GDP in 2015?

Accepted Answer

A)  France
B)  Belgium
C)  Spain
D)  CanadaE) None of the above
F) A) and D)

Question 13

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

Question 14

The crowding-out effect arises when:

Accepted Answer

A)  government borrows in the money market, thus increasing interest rates and net investment spending in the economy.
B)  government borrows in the money market, thus increasing interest rates and decreasing net investment spending.
C)  the progressivity of the tax system increases, thus decreasing interest rates and increasing net investment spending.
D)  the progressivity of the tax system decreases, thus decreasing interest rates and net investment spending.E) A) and C)
F) B) and D)

Question 15

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

Question 16

If you are told that the government had an actual budget deficit of $50 billion, then you would:

Accepted Answer

A)  know that fiscal policy was expansionary.
B)  know that fiscal policy was contractionary.
C)  know that fiscal policy was producing a cyclical deficit.
D)  not be able to determine the direction of fiscal policy from the information given.E) None of the above
F) C) and D)

Question 17

Which of the following is the best example of public investment?

Accepted Answer

A)  salaries of members of Parliament
B)  government expenditures on paper clips
C)  construction of highways
D)  funding of regulatory agenciesE) A) and C)
F) None of the above

Question 18

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

Question 19

A cyclical surplus (movement from a deficit to a surplus)  is a by-product of what stage of the business cycle?

Accepted Answer

A)  Recession
B)  Trough
C)  Expansion
D)  PeakE) A) and D)
F) B) and C)

Question 20

An example of a built-in automatic stabilizer for the Canadian economy is:

Accepted Answer

A)  the tax system.
B)  the market interest rate.
C)  consumption expenditure.
D)  investment spending.E) A) and B)
F) A) and C)

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

Suppose that in an economy with a MPC of .5 the government wanted to shift the aggregate demand curve rightward by $80 billion at each price level to expand real GDP.It could:

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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:

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

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Which of the following phases of a business cycle generates cyclical deficit (a movement from a surplus to a deficit) as a by-product?

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An example of a built-in automatic stabilizer for the Canadian economy is:

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Using Image 13.2 Global Perspective, which of the following countries had the lowest public debt as a percentage of GDP in 2015?

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

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Refer to the above graph.The crowding-out effect would be illustrated by a:

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

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The Federal budget deficit is calculated each year by:

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A cyclical surplus (movement from a deficit to a surplus) is a by-product of what stage of the business cycle?

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

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The crowding-out effect arises when:

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In Year 1, the actual budget deficit was $150 billion and the cyclically adjusted deficit was $125 billion.In Year 2, the actual budget deficit was $125 billion and the cyclically adjusted deficit was $100 billion.It can be concluded that fiscal policy from Year 1 to Year 2 was:

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The crowding-out of investment may be avoided if a budget deficit is financed by issuing new money.

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

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If you are told that the government had an actual budget deficit of $50 billion, then you would:

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Assume the economy is in the midst of a severe recession.Which of the following policies would be consistent with discretionary fiscal policy?

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Which of the following is the best example of public investment?

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

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