Deck 14: Fiscal Policy

Question 1

The government has a budget surplus if

A)government expenses are greater than tax revenues.
B)revenues are greater than expenses.
C)a fiscal stimulus is being used to combat a recession.
D)the budget is balanced.
E)there is no national debt.

Answer 1

B

Question 2

When government expenses exceed revenues,the situation is called a budget

A)surplus.
B)with a negative balance.
C)deficit.
D)debt.
E)with no balance.

Answer 2

C

Question 3

When the government's expenditures exceed its revenues,the budget

A)is balanced and the national debt is increasing.
B)has a deficit and the national debt is decreasing.
C)has a surplus and the national debt is increasing.
D)has a deficit and the national debt is increasing.
E)None of the above because by law the government's expenditures cannot exceed its tax revenue.

Answer 3

D

Question 4

When the government's expenses equal its revenues,then the budget

A)is in deficit.
B)is in surplus.
C)is legal only because expenditures equal tax revenues.
D)is balanced.
E)could be either in surplus or deficit.

Question 5

In the 2013/14 Commonwealth budget,the Australian government had revenues of $374 billion and expenses of $414 billion.The budget

A)surplus was $20 billion.
B)deficit was $40 billion.
C)deficit was $23 billion.
D)was balanced because every dollar the government spends it must raise.
E)surplus was $40 billion.

Question 6

The largest Commonwealth government expenses in the 2013/14 budget were

A)transfer payments.
B)the international travel expenses of government officials.
C)expenditure on goods and services.
D)the salaries of public servants.
E)debt interest and other payments.

Question 7

When revenues exceed the government's expenses,the budget

A)is balanced and the national debt is decreasing.
B)has a surplus and the national debt is increasing.
C)has a deficit and the national debt is increasing.
D)has a surplus and the national debt is decreasing.
E)None of the above because by law tax revenue cannot exceed the government's expenditures.

Question 8

The table above gives a nation's government outlays and tax revenues for 2008 through to 2012.
Based on the table above,during which years did the country have a budget surplus?

A)2008 and 2009
B)2012 only
C)2011 only
D)2010 and 2012
E)All except 2011

Question 9

The two purposes of the Commonwealth budget are

A)to finance the activities of the government and achieve macroeconomic objectives.
B)to finance the activities of the government and reduce debt.
C)to finance the expenses of the government and achieve a budget surplus.
D)to finance the activities of the government and achieve microeconomic objectives.
E)None of the above.

Question 10

In Australia for the year 2013/14,the Commonwealth government had a ________ so the national debt was ________.

A)budget surplus;increasing
B)budget deficit;increasing
C)budget deficit;decreasing
D)balanced budget;not changing
E)budget surplus;decreasing

Question 11

The use of the Commonwealth budget to achieve macroeconomic objectives of full employment and high and sustainable economic growth is

A)called government GDP policy.
B)done only when there is a budget deficit.
C)done only when there is a budget surplus.
D)called fiscal policy.
E)called monetary policy.

Question 12

The Commonwealth government's expenses are classified into three categories.These are

A)transfers to international governments,debt repayments and government officials' overseas travel expenses.
B)unemployment benefits,infrastructure investments and debt.
C)transfer payments,salaries of public servants and debt.
D)transfer payments,expenditure on goods and services,and debt interest and other payments.
E)None of the above.

Question 13

When government revenues minus expenses is i.positive,the government has a budget surplus.
Ii)negative,the government has a budget deficit.
Iii)zero,the government has a balanced budget.

A)i only
B)iii only
C)i,ii,and iii
D)ii and iii only
E)i and ii only

Question 14

When revenues ________ expenses is positive,then the government has a budget ________.

A)plus;surplus
B)plus;deficit
C)divided by;surplus
D)minus;deficit
E)minus;surplus

Question 15

When revenues equal government expenses,the situation is referred to as

A)a legal budget.
B)an equilibrium budget.
C)a balanced budget.
D)an equal budget.
E)an equivalent budget.

Question 16

The government collects revenues of $100 million and has $105 million in expenses.The budget balance is a

A)deficit of $5 million.
B)deficit of $105 million.
C)surplus of $105 million.
D)surplus of $5 million.
E)surplus of $100 million and a deficit of $105 million.

Question 17

When revenues ________ expenses is negative,then the government has a budget ________.

A)plus;deficit
B)minus;deficit
C)divided by;surplus
D)minus;surplus
E)plus;surplus

Question 18

The Commonwealth budget is defined as

A)a monthly statement of expenses and revenue laws passed by the Australian Parliament.
B)an annual statement of expenses and revenues of the Australian government.
C)an annual statement of what policy actions the Australian government has pursued.
D)a monthly statement of whether the Australian government is in deficit or surplus.
E)an annual statement of Australian government violations of international laws.

Question 19

The Commonwealth government's revenue is made up from

A)non-tax revenue,indirect and other taxes .
B)taxes on individuals and companies.
C)taxes on individuals and international governments.
D)A and C.
E)B and C.

Question 20

The largest source of Commonwealth government revenue in the 2013/14 budget was

A)indirect taxes like the GST.
B)company tax.
C)non-tax revenue.
D)taxes on individuals such as income tax.
E)taxes on the sale of beer and tobacco.

Question 21

The two chief reasons why deficits and debt matter are that they i.lower credit ratings and increase interest rates.
Ii)redistribute consumption across generations.
Iii)create an income gap.

A)i only
B)ii only
C)i and ii
D)ii and iii
E)i,ii and iii

Question 22

As contrasted to the mainstream view,Keynesian economists believe that ________ than mainstream economists believe.

A)fiscal stimulus is weaker
B)the multiplier effect is larger
C)the burden of government debt on future generations is larger
D)potential GDP is smaller
E)the real GDP growth rate is higher

Question 23

Other things remaining the same,the ________ a government's credit rating,the ________ is the interest it faces.

A)lower;higher
B)higher;higher
C)lower;smaller
D)smaller;lower
E)lower;lower

Question 24

The table above gives a nation's government outlays and tax revenues for 2008 through to 2012.
Based on the table above,during which years did the country have a budget deficit?

A)2008 and 2009
B)2012 only
C)2011 only
D)2010 and 2012
E)All except 2011

Question 25

When the government's expenses equal its revenue,the budget

A)is balanced and the government debt is not changing.
B)has a deficit and the total debt is decreasing.
C)has a surplus and the government debt is increasing.
D)has a deficit and the government debt is increasing.
E)has a surplus and the total debt is decreasing.

Question 26

National debt decreases in a given year when a country has

A)a balanced budget.
B)a budget supplement.
C)a budget surplus.
D)no discretionary fiscal policy.
E)a budget deficit.

Question 27

When the government's expenses exceed its revenues,the government debt

A)shrinks thanks to the budget deficit.
B)grows to finance the budget surplus.
C)grows to finance the budget deficit.
D)shrinks thanks to the budget surplus.
E)does not change because it has nothing to do with government outlays and tax revenue.

Question 28

The table above gives a nation's government outlays and tax revenues for 2008 through to 2012.
Based on the table above,during which years did the country have a balanced budget?

A)2008 and 2009
B)2012 only
C)2011 only
D)2010 and 2012
E)All except 2011

Question 29

When government outlays are less than tax revenues,the government has

A)a budget with a negative debt.
B)an illegal budget because outlays must exceed tax revenues.
C)a budget with a positive balance.
D)a budget surplus.
E)a budget deficit.

Question 30

A credit rating provides information on an investor's level of default risk.The highest rating is

A)AAA.
B)BB.
C)AA+.
D)A+.
E)AAB.

Question 31

The above table gives the government outlays and tax revenues from 2008 through to 2012 for two countries.In 2010,country A had a ________ and country B had a ________.

A)budget deficit;budget surplus
B)budget surplus;budget surplus
C)budget surplus;budget deficit
D)budget deficit;budget deficit
E)balanced budget;budget deficit

Question 32

The government debt is the amount

A)by which government revenue exceeds expenses in a given year.
B)of government outlays summed over time.
C)of all future entitlement spending.
D)of debt outstanding that arises from past budget deficits.
E)by which government expenses exceed revenue in a given year.

Question 33

If government revenues are $230 billion and the government's expenses are $235 billion,then the budget

A)deficit is $5 billion and government debt will increase by $5 billion.
B)deficit is $5 billion and government debt will remain the same.
C)surplus is $5 billion and government debt will increase by $5 billion.
D)surplus is $230 billion and the budget deficit is $235 billion.
E)deficit is $5 billion and government debt will decrease by $5 billion.

Question 34

The government debt is

A)the excess of this year's budget surplus minus this year's budget deficit.
B)government expenses minus revenue.
C)tax revenue minus government expenses.
D)the amount lent by the government of past budget surpluses.
E)the amount borrowed by the government to finance past budget deficits.

Question 35

In May 2015,the credit rating for Commonwealth of Australia bonds was

A)BB+.
B)AAA.
C)AA+.
D)CC+.
E)A+.

Question 36

From 2000 to 2008,the Australian government generally had a government budget ________ and so the government debt ________.

A)surplus;decreased
B)surplus;increased
C)deficit;decreased
D)deficit;did not change
E)deficit;increased

Question 37

The above table gives the government outlays and tax revenues from 2008 through to 2012 for two countries.In 2011,country A had a ________ and country B had a ________.

A)balanced budget;budget deficit
B)budget surplus;balanced budget
C)budget deficit;budget deficit
D)budget surplus;budget surplus
E)balanced budget;budget surplus

Question 38

If you take a HECS-HELP student loan and repay after you graduate,you redistribute your income.In particular you consume ________ than your income when you are young and in university and ________ your income after you graduate.

A)less,more than
B)more;more than
C)more;less than
D)less;less than
E)None of the above

Question 39

The government debt can only be reduced if

A)there are no tax multiplier effects.
B)the economy has a deflationary gap.
C)the Commonwealth budget is in surplus.
D)the economy has an inflationary gap.
E)the Commonwealth budget is in deficit.

Question 40

As contrasted to the Keynesian view,mainstream economists believe that ________ than Keynesian economists believe.

A)the effects from fiscal stimulus are weaker
B)the multiplier effect is larger
C)potential GDP is less important
D)any crowding-out effect is smaller
E)the real GDP growth rate is larger

Question 41

When an economy is above full employment and the government has a budget deficit,that deficit

A)is equal to the structural deficit minus the cyclical deficit.
B)is equal to the cyclical deficit minus the structural deficit.
C)is equal to the cyclical deficit.
D)exceeds the structural deficit.
E)is less than the structural deficit.

Question 42

Which of the following is an example of an automatic fiscal policy action?

A)A decrease in the tax rate resulting from an effort to increase aggregate demand to combat a recession.
B)An increase in unemployment benefit payments resulting from higher unemployment.
C)An increase in the tax rate resulting from a desire to shrink the budget deficit.
D)An increase in spending on defence goods resulting from increased tension with Indonesia.
E)None of the above answers is correct.

Question 43

The structural surplus

A)equals the actual surplus plus the cyclical surplus.
B)is legally required to be positive.
C)is the government budget surplus that would exist if the economy was at full employment.
D)fluctuates over the business cycle.
E)is,by definition,equal to the negative of the cyclical deficit.

Question 44

Automatic stabilisers are defined as

A)policy that has no multiplier effects.
B)policy that stabilises without the need for action by the government.
C)actions taken by Treasury to stabilise the economy.
D)actions taken by the Prime Minister without Parliamentary approval to stabilise the economy.
E)discretionary policy taken to stabilise the economy.

Question 45

The structural deficit or surplus is the

A)actual government budget deficit or surplus minus expenditures for capital improvements.
B)government budget deficit or surplus that would occur if the economy were at full employment.
C)difference between actual government outlays and actual government revenues.
D)difference between actual government outlays and what would be government revenues if the economy were at full employment.
E)change in national debt that will result from current budgetary policies.

Question 46

The structural deficit is the deficit

A)caused by the business cycle.
B)during an expansion.
C)that would occur at full employment.
D)during a recession.
E)that does not increase the national debt.

Question 47

Automatic stabilisers

A)have no effect on the magnitude of the government expenditure multiplier.
B)reduce the government expenditure multiplier to zero.
C)increase the magnitude of the government expenditure multiplier.
D)decrease the magnitude of the government expenditure multiplier.
E)increase the magnitude of the tax multiplier.

Question 48

Fiscal policies that move the economy toward potential GDP without a change in policy are called

A)economic stabilisers.
B)automatic stabilisers.
C)spending stabilisers.
D)routine stabilisers.
E)GDP stabilisers.

Question 49

The cyclical deficit is the portion of the deficit

A)that does not add to the national debt.
B)that is the result of discretionary federal spending.
C)that would exist if the economy were at full employment.
D)that is the result of nondiscretionary federal spending.
E)created by fluctuations in real GDP.

Question 50

Induced taxes are defined as taxes

A)that rise in recessions and fall in expansions.
B)we are forced to pay for services from the government.
C)that vary with real GDP.
D)that are avoided with the use of legal tax shelters.
E)that explicitly state the amount to be paid.

Question 51

Do automatic fiscal stabilisers eliminate business cycles?

A)Yes
B)No,they make business cycle fluctuations more severe.
C)No,because they have no effect if the business cycle is the result of some unanticipated change.
D)No,they increase the likelihood that a business cycle occurs.
E)No,but they do moderate business cycles.

Question 52

Automatic stabilisers include

A)changes in the cash rate brought about by the Reserve Bank.
B)changes in discretionary spending.
C)increases or decreases in tax rates.
D)changes in induced taxes.
E)changes in induced taxes and changes in discretionary spending.

Question 53

Automatic stabilisers decrease the impact of a recession on the level of economic activity because they

A)mean disposable income does not change by as much as real GDP.
B)reduce the interest rate and so allow firms to increase their level of investment.
C)increase the quantity of money in circulation.
D)raise the exchange rate so Australian exports become more attractive to foreigners.
E)increase taxes so the budget is always balanced.

Question 54

An example of automatic fiscal policy is

A)Parliament passing a tax rate reduction package.
B)the Reserve Bank reducing interest rates as economic growth slows.
C)the Commonwealth government expanding spending at the Department of Education and Training.
D)expenditure for unemployment benefits increasing as economic growth slows.
E)a change in taxes that has no multiplier effect.

Question 55

Taxes that change with the level of real GDP and income are called

A)GDP taxes.
B)voluntary taxes.
C)forced taxes.
D)induced taxes.
E)flexible taxes.

Question 56

Which of the following is true?

A)Automatic stabilisers help to reduce the impact of a recession.
B)Discretionary fiscal policy cannot eliminate a recession.
C)Automatic stabilisers are used to eliminate recessions.
D)Discretionary fiscal policy can automatically eliminate a recession.
E)Automatic stabilisers make discretionary policy more effective by increasing the magnitude of the multipliers.

Question 57

Automatic changes in tax revenues and expenses that occur as a result of fluctuations in real GDP are referred to as automatic

A)taxes and expenditure.
B)government.
C)discretionary taxes and expenditure.
D)discretionary policy.
E)stabilisers.

Question 58

During a recession,unemployment benefit payments increase without the need for any government action.This increase is an example of

A)automatic monetary policy.
B)automatic fiscal policy.
C)government expenditure,but it is not an example of either discretionary or automatic policy.
D)discretionary fiscal policy.
E)discretionary monetary policy.

Question 59

The actual budget deficit is equal to the

A)cyclical deficit.
B)structural deficit plus the cyclical deficit.
C)structural deficit.
D)structural deficit minus the cyclical deficit.
E)cyclical deficit minus the structural deficit.

Question 60

In an expansion,tax revenues increase proportionally more than real GDP without the need for any government policy.This increase is an example of

A)automatic monetary policy.
B)discretionary fiscal policy.
C)automatic fiscal policy.
D)discretionary monetary policy.
E)the effect of deficit spending.

Question 61

If the budget deficit is $50 billion and the structural deficit is $10 billion,the cyclical deficit is

A)$40 billion.
B)More information is needed to answer the question.
C)$50 billion.
D)$60 billion.
E)$10 billion.

Question 62

If the Commonwealth government cuts taxes by $10 billion,aggregate demand

A)decreases by $10 billion
B)decreases by $10 billion multiplied by the tax multiplier.
C)increases by $10 billion.
D)increases by $10 billion multiplied by the government expenditure multiplier.
E)increases by $10 billion multiplied by the tax multiplier.

Question 63

The balanced budget multiplier is

A)negative because the magnitude of the government expenditure multiplier is larger than the magnitude of the tax multiplier.
B)positive because the magnitude of the government expenditure multiplier is smaller than the magnitude of the tax multiplier.
C)positive because the magnitude of the government expenditure multiplier is larger than the magnitude of the tax multiplier.
D)negative because the magnitude of the tax multiplier is larger than the magnitude of the government expenditure multiplier.
E)equal to zero.

Question 64

The government expenditure multiplier and the tax multiplier are

A)not comparable because the government expenditure multiplier applies to aggregate demand and the tax multiplier applies to aggregate supply.
B)not comparable because the government expenditure multiplier applies to aggregate supply and the tax multiplier applies to aggregate demand.
C)different in size and the tax multiplier is larger.
D)identical in size.
E)different in size and the government expenditure multiplier is larger.

Question 65

If government expenditure on goods and services increases by $100 billion,then aggregate demand

A)remains unchanged.
B)increases by $100 billion.
C)decreases by more than $100 billion.
D)increases by more than $100 billion.
E)increases by less than $100 billion.

Question 66

If government expenditure on goods and services increases by $10 billion,then aggregate demand

A)increases by $10 billion multiplied by the tax multiplier.
B)decreases by $10 billion multiplied by the government expenditure multiplier.
C)increases by $10 billion.
D)increases by $10 billion multiplied by the government expenditure multiplier.
E)decreases by $10 billion.

Question 67

A $100 million decrease in government expenditure on goods and services leads to an even larger decrease in aggregate demand because of

A)discretionary fiscal policy.
B)induced changes in aggregate supply.
C)induced changes in consumption expenditures.
D)automatic fiscal policy.
E)the reinforcing effect of monetary policy.

Question 68

Discretionary fiscal policy is a fiscal policy action,such as

A)a decrease in tax receipts,initiated by the state of the economy.
B)an increase in payments to the unemployed,initiated by the state of the economy.
C)an interest rate cut.
D)a tax cut,initiated by the government to simulate spending.
E)an increase in the quantity of money.

Question 69

If government expenditures on goods and services increase by $20 billion,then aggregate demand

A)decreases by $20 billion.
B)increases by more than $20 billion.
C)increases by less than $20 billion.
D)decreases by more than $20 billion.
E)increases by $20 billion.

Question 70

The tax multiplier is the

A)magnification effect of a change in taxes on the national debt.
B)magnification effect of a change in taxes on aggregate demand.
C)magnification effect of a change in taxes on government expenditures.
D)magnification effect of a change in taxes on aggregate supply.
E)magnification effect of a change in taxes on the budget deficit.

Question 71

The balanced budget multiplier is

A)misnamed because it does not leave the budget balanced.
B)equal to zero because taxes and government expenditure are changed to leave the budget balanced.
C)greater than zero and greater than the government expenditure multiplier.
D)greater than zero and less than the government expenditure multiplier.
E)less than zero,that is,it is negative.

Question 72

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue,the effect of the increase in government expenditure on aggregate demand is

A)negative,whereas the effect of the tax decrease is positive.
B)positive,whereas the effect of the tax decrease is negative.
C)greater than the effect of the tax decrease.
D)equal to the effect of the tax decrease.
E)less than the effect of the tax decrease.

Question 73

The government expenditure multiplier is used to determine the

A)amount aggregate supply is affected by a change in government expenditure.
B)amount private consumption is decreased by government expenditure.
C)amount aggregate demand is affected by a change in government expenditure.
D)extent to which automatic stabilisers must be changed in order to avoid recessions.
E)extra scrutiny government action receives.

Question 74

Ignoring any supply-side effects,suppose the government is considering cutting taxes by $100 billion or increasing government expenditures on goods and services by $100 billion.Then

A)both policies would increase aggregate demand but the increase in government expenditure has a smaller effect.
B)both policies would increase aggregate demand but the tax cut has a smaller effect.
C)the tax cut would increase aggregate demand and the increase in government expenditure would decrease aggregate demand.
D)both policies would increase aggregate demand by the same amount.
E)the tax cut would decrease aggregate demand and the increase in government expenditure would increase aggregate demand.

Question 75

The magnitude of the tax multiplier is smaller than the magnitude of the government expenditure multiplier because

A)a change in taxes creates additional induced taxes.
B)a change in taxes does not change expenditures.
C)an increase in taxes decreases expenditures.
D)a change in taxes does not change expenditures by as much as the same size change in government expenditure.
E)a decrease in government expenditure decreases tax revenue.

Question 76

If the economy has a structural deficit of $25 billion and a cyclical deficit of $75,we can conclude that the current budget deficit is ________ billion.

A)$75
B)$50
C)$0
D)$25
E)$100

Question 77

The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand.

A)expenditure;tax;decreases
B)expenditure;tax;does not change
C)tax;expenditure;decreases
D)tax;expenditure;does not change
E)expenditure;tax;increases

Question 78

The magnitude of the government expenditure multiplier is ________ the magnitude of the tax multiplier.

A)not comparable to
B)equal to
C)less than
D)greater than
E)for expansionary policy greater than and for contractionary policy less than

Question 79

If the government reduces expenditure on goods and services by $30 billion,then aggregate demand

A)increases by more than $30 billion and real GDP increases.
B)decreases by more than $30 billion and real GDP decreases.
C)decreases by $30 billion and real GDP decreases.
D)increases by $30 billion and real GDP increases.
E)increases and potential GDP increases.

Question 80

If a change in the tax laws leads to a $100 billion decrease in tax revenue,then aggregate demand

A)increases by $100 billion.
B)decreases by more than $100 billion.
C)increases by more than $100 billion.
D)decreases by $100 billion.
E)increases by less than $100 billion.