Question 1

Running a federal budget deficit would tend to increase real output in the short run,but running persistently large federal budget deficits could result in reducing real output in the long run,other things being equal.

Accepted Answer

A) True 
 B)False

Question 2

Describe the difference between a regressive and a progressive tax.

Accepted Answer

A regressive tax is one for which as the...

Question 3

What effect would an increase in taxes combined with a decrease in government purchases have on AD?

Accepted Answer

A)  It would increase AD.
B)  It would leave AD unchanged.
C)  It would decrease AD.
D)  It would have an indeterminate effect on AD.

Question 4

During a boom expansionary economy,public assistance payments and unemployment compensation payments automatically decrease,while income taxes automatically increase.Which of the following best describes the effect of these changes on aggregate demand?

Accepted Answer

A)  Aggregate demand will be less than it was before the expansion.
B)  Aggregate demand will be less than it would be without these automatic stabilizers.
C)  Aggregate demand will be the same as it was before the expansion.
D)  Aggregate demand will be more than it would be without these automatic stabilizers.

Question 5

Due to crowding-out effects,other things being equal,in what direction will net exports and investment tend to move?

Accepted Answer

A)  Net exports and investment will tend to move in the same direction as a change in government purchases.
B)  Net exports will tend to move in the opposite direction as a change in government purchases, and investment will tend to move in the same direction.
C)  Net exports and investment will tend to move in the opposite direction from a change in government purchases.
D)  Net exports will tend to move in the same direction as a change in government purchases, and investment will tend to move in the opposite direction.

Question 6

If the MPC is 0.8,what increase in government purchases would be called for to achieve a $50 billion increase in AD?

Accepted Answer

A)  $10 billion
B)  $40 billion
C)  $50 billion
D)  $62.5 billion

Question 7

If investment decreases by $20 billion and the MPC is 0.8,what will the resulting decrease in the consumption component of AD be?

Accepted Answer

A)  $16 billion
B)  $4 billion
C)  $100 billion
D)  $80 billion

Question 8

According to the recognition lag,how long might it take Statistics Canada to identify the beginning of an economic downturn?

Accepted Answer

A)  from 3 to six weeks
B)  from 3 months
C)  from 6 to 12 months
D)  from 3 to 6 months

Question 9

What are the component parts of fiscal policy and how do they affect aggregate demand?

Accepted Answer

Fiscal policy consis...

Question 10

What effect would a $10 billion decrease in government purchases have on AD?

Accepted Answer

A)  It would decrease AD by $4 billion if MPC = 0.4.
B)  It would increase AD by $50 billion if MPC = 0.8.
C)  It would increase AD by $20 billion if MPC = 0.5.
D)  It would decrease AD by $30 billion if MPC = 2/3.

Question 11

Under which of the following circumstances does an increase in a government budget deficit have a larger effect on AD?

Accepted Answer

A)  the more sensitive investment is to a change in interest rates
B)  the more money demand shifts as a result
C)  the less money demand shifts as a result
D)  the smaller the government expenditures exceed tax revenue

Question 12

When are budget deficits created?

Accepted Answer

A)  when interest on government debt is increasing
B)  when government tax revenues exceeds its spending
C)  when government spending equals its tax revenues
D)  when government spending exceeds its tax revenues

Question 13

What impact does a smaller crowding-out effect have on the magnitude of a given fiscal policy's effect on AD and net exports?

Accepted Answer

A)  It increases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effect on net exports.
B)  It increases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effect on net exports.
C)  It decreases the magnitude of a given fiscal policy's effect on AD and decreases the magnitude of its effect on net exports.
D)  It decreases the magnitude of a given fiscal policy's effect on AD and increases the magnitude of its effect on net exports.

Question 14

Since 1970,the level of government transfer payments has decreased.

Accepted Answer

A) True 
 B)False

Question 15

What effect would a combination of an increase in investment and a decrease in imports have on AD?

Accepted Answer

A)  It would have an indeterminate effect on AD.
B)  It would decrease AD.
C)  It would leave AD unchanged.
D)  It would increase AD.

Question 16

Explain what effect an expansionary fiscal policy would have on the price level and real GDP starting from full employment equilibrium.

Accepted Answer

Expansionary fiscal policy at full emplo...

Question 17

What type of tax is designed to take a larger percentage from high incomes as compared to lower incomes?

Accepted Answer

A)  Regressive
B)  Positive
C)  Progressive
D)  Negative

Question 18

If government policy makers are worried about the inflationary potential of the economy,which of the following would NOT be a correct fiscal policy change?

Accepted Answer

A)  reducing transfer payments
B)  increasing consumption taxes
C)  increasing the budget surplus
D)  increasing government purchases of goods and services

Question 19

Robert lost his job during the last recession and his yearly income fell by 15 percent.As a result of the action of automatic stabilizers,his disposable income fell by less than 15 percent.

Accepted Answer

A) True 
 B)False

Question 20

If net exports increase by $10 billion and the MPC to 0.6,what will the resulting increase in the consumption component of AD be?

Accepted Answer

A)  $25 billion
B)  $15 billion
C)  $6 billion
D)  $4 billion

Exam 10: Fiscal Policy

When are budget deficits created?

Correct AnswerverifiedShow Answer

If net exports increase by $10 billion and the MPC to 0.6,what will the resulting increase in the consumption component of AD be?

Correct AnswerverifiedShow Answer

During a boom expansionary economy,public assistance payments and unemployment compensation payments automatically decrease,while income taxes automatically increase.Which of the following best describes the effect of these changes on aggregate demand?

Correct AnswerverifiedShow Answer

What effect would a combination of an increase in investment and a decrease in imports have on AD?

Correct AnswerverifiedShow Answer

Under which of the following circumstances does an increase in a government budget deficit have a larger effect on AD?

Correct AnswerverifiedShow Answer

What type of tax is designed to take a larger percentage from high incomes as compared to lower incomes?

Correct AnswerverifiedShow Answer

Due to crowding-out effects,other things being equal,in what direction will net exports and investment tend to move?

Correct AnswerverifiedShow Answer

Explain what effect an expansionary fiscal policy would have on the price level and real GDP starting from full employment equilibrium.

Correct AnswerverifiedExpansionary fiscal policy at full emplo...View AnswerShow Answer

If the MPC is 0.8,what increase in government purchases would be called for to achieve a $50 billion increase in AD?

Correct AnswerverifiedShow Answer

What effect would a $10 billion decrease in government purchases have on AD?

Correct AnswerverifiedShow Answer

Running a federal budget deficit would tend to increase real output in the short run,but running persistently large federal budget deficits could result in reducing real output in the long run,other things being equal.

Correct AnswerverifiedShow Answer

Robert lost his job during the last recession and his yearly income fell by 15 percent.As a result of the action of automatic stabilizers,his disposable income fell by less than 15 percent.

Correct AnswerverifiedShow Answer

According to the recognition lag,how long might it take Statistics Canada to identify the beginning of an economic downturn?

Correct AnswerverifiedShow Answer

If investment decreases by $20 billion and the MPC is 0.8,what will the resulting decrease in the consumption component of AD be?

Correct AnswerverifiedShow Answer

What are the component parts of fiscal policy and how do they affect aggregate demand?

Correct AnswerverifiedFiscal policy consis...View AnswerShow Answer

If government policy makers are worried about the inflationary potential of the economy,which of the following would NOT be a correct fiscal policy change?

Correct AnswerverifiedShow Answer

What impact does a smaller crowding-out effect have on the magnitude of a given fiscal policy's effect on AD and net exports?

Correct AnswerverifiedShow Answer

Since 1970,the level of government transfer payments has decreased.

Correct AnswerverifiedShow Answer

Describe the difference between a regressive and a progressive tax.

Correct AnswerverifiedA regressive tax is one for which as the...View AnswerShow Answer

What effect would an increase in taxes combined with a decrease in government purchases have on AD?

Correct AnswerverifiedShow Answer

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Expansionary fiscal policy at full emplo...
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Fiscal policy consis...
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A regressive tax is one for which as the...
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Correct Answer
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