Question 1

The direction of discretionary fiscal policy cannot be examined by a simple look at the changes in the actual budget deficits or surpluses.This is because:

Accepted Answer

A)  those changes may reflect the changes in the general price level.
B)  those changes may reflect automatic changes in the tax revenues as a result of change in GDP.
C)  those changes may reflect the changes in the tax revenues as a result of change in imports.
D)  it is impossible to calculate the changes in the actual budget deficits or surpluses. B

Question 2

One reason the public debt will not bankrupt the Federal government is that the:

Accepted Answer

A)  cost is shifted to future generations.
B)  debt has a pro-cyclical effect on the economy.
C)  debt can be refinanced by selling new bonds.
D)  burden of the debt will be crowded-out by new investment. C

Question 3

Which of the following represents the most expansionary fiscal policy?

Accepted Answer

A)  a $10 billion tax cut
B)  a $10 billion increase in government spending
C)  a $10 billion tax increase
D)  a $10 billion decrease in government spending B

Question 4

Other things 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 retirement

Question 5

An increase in taxes would be an expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 6

An increase in the cyclical deficits will automatically increase the full-employment budget deficit.

Accepted Answer

A) True 
 B)False

Question 7

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.

Question 8

Discretionary fiscal policy refers to:

Accepted Answer

A)  any change in government spending or taxes which destabilizes the economy.
B)  the authority which Parliament has to change personal income tax rates.
C)  changes in taxes and government expenditures made by Parliament to stabilize the economy.
D)  the changes in taxes and transfers which occur as GDP changes.

Question 9

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 10

Built-in stability is synonymous with discretionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 11

Who among the following owned the largest percentage of Canada's public debt in 2016, using Figure 13-7?

Accepted Answer

A)  Public and chartered banks
B)  Nonresidents
C)  The Bank of Canada
D)  China

Question 12

The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.

Accepted Answer

A) True 
 B)False

Question 13

An appropriate fiscal policy for a severe recession is:

Accepted Answer

A)  a decrease in government spending.
B)  a decrease in tax rates.
C)  appreciation of the dollar.
D)  an increase in interest rates.

Question 14

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Accepted Answer

A)  increased government spending or increased taxation, or a combination of the two actions.
B)  increased government spending or decreased taxation, or a combination of the two actions.
C)  increased government spending or increased taxation, but not a combination of the two actions.
D)  decreased government spending or decreased taxation, or a combination of the two actions.

Question 15

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.

Question 16

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.

Question 17

Who among the following owned the smallest percentage of Canada's public debt in 2016, using Figure 13-7?

Accepted Answer

A)  Private equity funds
B)  Nonresidents
C)  The Bank of Canada
D)  China

Question 18

The public debt is the accumulation of all deficits and surpluses which have occurred through time.

Accepted Answer

A) True 
 B)False

Question 19

Tax revenues automatically increase during economic expansions and decrease during recessions.

Accepted Answer

A) True 
 B)False

Question 20

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 taxes

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

The direction of discretionary fiscal policy cannot be examined by a simple look at the changes in the actual budget deficits or surpluses.This is because:

One reason the public debt will not bankrupt the Federal government is that the:

Which of the following represents the most expansionary fiscal policy?

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

An increase in taxes would be an expansionary fiscal policy.

An increase in the cyclical deficits will automatically increase the full-employment budget deficit.

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

Discretionary fiscal policy refers to:

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

Built-in stability is synonymous with discretionary fiscal policy.

Who among the following owned the largest percentage of Canada's public debt in 2016, using Figure 13-7?

The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.

An appropriate fiscal policy for a severe recession is:

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

An expansionary fiscal policy in Canada which drives up Canadian interest rates is most likely to:

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

Who among the following owned the smallest percentage of Canada's public debt in 2016, using Figure 13-7?

The public debt is the accumulation of all deficits and surpluses which have occurred through time.

Tax revenues automatically increase during economic expansions and decrease during recessions.

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