Question 1

Decreasing government expenditures in order to reduce the governmentʹs budget deficit can involve certain costs.An example of such a cost could be

Accepted Answer

A)  larger school facilities to accommodate a growing population.
B)  longer queues for essential government services such as health-care.
C)  encouraging future generations to be more self-sufficient and less reliant on government to provide for them.
D)  a lower portion of taxes being used to pay interest.
E)  improving the flexibility to practice counter-cyclical fiscal policy.F) B) and D)
G) C) and D) B

Question 2

When a government changes its fiscal policy,it is

Accepted Answer

A)  changing the exchange rates to change national income.
B)  increasing the money supply to increase national income.
C)  changing government spending and/or tax rates to achieve some objective.
D)  using government spending and taxes together with changing the money supply in order to achieve full employment.
E)  buying and selling private bonds to increase or decrease the overnight lending rate.F) C) and D)
G) C) and E)

Question 3

The Canadian tax and transfer system acts as an automatic stabilizer because

Accepted Answer

A)  net tax revenues decrease during economic booms and decrease during economic recessions.
B)  net tax revenues increase during economic booms and decrease during economic recessions.
C)  tax rates will automatically decrease to stimulate the economy during economic booms.
D)  tax rates will automatically increase if the government is running deficits.
E)  tax rates will automatically increase to stimulate the economy during economic recessions.F) C) and D)
G) B) and D)

Question 4

If we want to know whether tax revenues are sufficient to finance the discretionary part of government expenditure,which of the following measures should we analyze?

Accepted Answer

A)  the cyclically adjusted deficit/surplus
B)  the governmentʹs budget constraint
C)  the debt-to-GDP ratio
D)  the governmentʹs primary deficit/surplus
E)  the interest rate on government bonds compared to the growth rate of real GDPF) A) and E)
G) C) and E)

Question 5

Suppose the government decided to ensure that its structural budget deficit was always zero.This policy would be problematic because

Accepted Answer

A)  it would act as a built-in destabilizer.
B)  it would entail a rising debt-to-GDP ratio.
C)  it would tend to mean that net exports would be crowded out.
D)  it would require continual fiscal expansion.
E)  it would require continual fiscal contraction.F) A) and B)
G) None of the above

Question 6

An annually balanced government budget is a difficult policy goal to achieve because

Accepted Answer

A)  a significant portion of the governmentʹs budget is beyond the short-term discretion of the federal government.
B)  government has little control over interest-rate charges on its debt during a fiscal year.
C)  tax revenues automatically rise during economic booms and fall during recessions.
D)  transfer payments rise during recessions and fall during economic booms.
E)  all of the above are reasons why a balanced budget is difficult to achieve.F) B) and E)
G) All of the above

Question 7

In an open economy like Canadaʹs,a policy -induced increase in the governmentʹs budget deficit tends to

Accepted Answer

A)  attract foreign capital and reduce interest rates.
B)  crowd out public consumption.
C)  crowd out net exports and reduce interest rates.
D)  attract foreign capital and crowd out net exports.
E)  depreciate the domestic currency.F) A) and D)
G) B) and E)

Question 8

The diagram below shows two budget deficit functions for a hypothetical economy.
  FIGURE 31-2
-Refer to Figure 31-2.Initially,suppose the economy is at point A on budget deficit function B0.Real GDP (Y) is $100 million.If the level of potential output (Y*) were $300 million,the structural budget deficit would be

Accepted Answer

A)  $4 million.
B)  $6.5 million.
C)  $7.5 million.
D)  $14 million.
E)  Insufficient information to know.F) C) and D)
G) B) and D)

Question 9

The extent to which tax revenues are able to finance the discretionary part of total government expenditure is best measured by the

Accepted Answer

A)  cyclically adjusted deficit/surplus.
B)  governmentʹs current fiscal policy.
C)  debt-to-GDP ratio.
D)  governmentʹs primary budget deficit or surplus.
E)  tax-to-GDP ratio.F) B) and E)
G) None of the above

Question 10

Annually balanced government budgets

Accepted Answer

A)  are easy to implement due to the total control of government over its budget components in the short run.
B)  would allow the level of government expenditures to be independent of the changes in real GDP.
C)  would reduce the size of output gaps.
D)  would undermine the success of stabilization policies implemented by the government.
E)  would require the federal government to control both fiscal and monetary policy.F) None of the above
G) C) and D)

Question 11

Consider a closed-economy AD/AS macro model.An expansionary fiscal policy will generally increase the governmentʹs budget and also tends to and thus private investment.

Accepted Answer

A)  deficit; raise interest rates; decrease
B)  surplus; reduce interest rates; increase
C)  deficit; raise interest rates; increase
D)  surplus; reduce interest rates; decrease
E)  deficit; reduce interest rates; increaseF) B) and D)
G) None of the above A

Question 12

The governmentʹs primary budget deficit (or surplus) is the

Accepted Answer

A)  non-interest expenditures and interest payments.
B)  sum of total government expenditures and revenues.
C)  sum of interest payments and revenues.
D)  total budget deficit between two fiscal years.
E)  total budget deficit (or surplus) excluding debt-service payments.F) B) and D)
G) C) and D)

Question 13

Consider the following variables: G = government purchases
I = interest rate on government debt D = stock of government debt
T = net tax revenue
The governmentʹs budget constraint can be expressed as

Accepted Answer

A)  (G + i
D)  = borrowing - T.
B)  (G + i
D)  - T = borrowing.
C)  (G + i
D)  + T = borrowing.
D)  G - T - (i
D)  = borrowing.
E)  (G - i
D)  = borrowing + T.F) B) and C)
G) A) and E)

Question 14

The best measure of the change in the stance of a governmentʹs fiscal policy is

Accepted Answer

A)  the actual budget deficit.
B)  the cyclically adjusted deficit.
C)  the change in the structural budget deficit.
D)  the change in the actual budget deficit.
E)  the change in the primary budget deficit.F) C) and E)
G) A) and B)

Question 15

Suppose the stock of government debt in Canada at the end of one fiscal year (Year 1) is $475 billion.During the following year (Year 2) ,government purchases were $180 billion,debt -service payments were $25 billion,and net tax revenues were $208 billion.What is the stock of debt at the end of Year 2?

Accepted Answer

A)  $422 billion
B)  $457 billion
C)  $472 billion
D)  $475 billion
E)  $478 billionF) B) and D)
G) B) and E) C

Question 16

Suppose the governmentʹs budget deficit falls from one year to the next,but there has been no change in the governmentʹs fiscal policy.The change in the budget deficit can be explained by

Accepted Answer

A)  a rising real interest rate.
B)  a change in the stance of fiscal policy.
C)  a rising real GDP.
D)  a rise in the cyclically adjusted deficit.
E)  a rise in the primary budget deficit.F) All of the above
G) None of the above

Question 17

Do we get a useful and meaningful statistic by dividing the national debt by the GDP?

Accepted Answer

A)  No - we are essentially ʺdividing apples by oranges,ʺ which is unhelpful.
B)  No - the GDP is not a meaningful measure of the well-being of the economy.
C)  Yes - we can then see how much of the national debt is owed by each individual citizen.
D)  Yes - we can see the burden of the debt in relation to the size of the economy.
E)  No - dividing a stock by a flow can never be sensible.F) B) and E)
G) A) and D)

Question 18

Suppose during one fiscal year,government purchases are $195 billion,debt-service payments are $22 billion and net tax revenues are $208 billion.What is the governmentʹs primary budget deficit/surplus?

Accepted Answer

A)  primary budget surplus of $22 billion
B)  primary budget deficit of $13 billion
C)  primary budget surplus of $13 billion
D)  primary budget deficit of $9 billion
E)  primary budget surplus of $9 billionF) B) and D)
G) B) and E)

Question 19

The diagram below shows two budget deficit functions for a hypothetical economy.
  FIGURE 31-2
-Refer to Figure 31-2.Initially,suppose the economy is at point A on budget deficit function B0.Real GDP (Y) is $100 million.If the level of potential output (Y*) were $300 million,the cyclical component of the actual budget deficit would be

Accepted Answer

A)  $4 million.
B)  $6.5 million.
C)  $7.5 million.
D)  $14 million.
E)  Insufficient information to know.F) C) and D)
G) A) and B)

Question 20

Consider a closed-economy AD/AS model.If an increase in the governmentʹs budget deficit drives up market interest rates,

Accepted Answer

A)  credit will become less expensive.
B)  nothing - government borrowing cannot push up interest rates.
C)  private expenditure will likely increase.
D)  some private investment expenditure will probably be crowded out.
E)  the money supply will increase.F) A) and B)
G) None of the above

Exam 31: Government Debt and Deficits

Decreasing government expenditures in order to reduce the governmentʹs budget deficit can involve certain costs.An example of such a cost could be

Correct Answer
verified
B

When a government changes its fiscal policy,it is

Correct Answer
verified

The Canadian tax and transfer system acts as an automatic stabilizer because

Correct Answer
verified

If we want to know whether tax revenues are sufficient to finance the discretionary part of government expenditure,which of the following measures should we analyze?

Correct Answer
verified

Suppose the government decided to ensure that its structural budget deficit was always zero.This policy would be problematic because

Correct Answer
verified

An annually balanced government budget is a difficult policy goal to achieve because

Correct Answer
verified

In an open economy like Canadaʹs,a policy -induced increase in the governmentʹs budget deficit tends to

Correct Answer
verified

Correct Answer
verified

The extent to which tax revenues are able to finance the discretionary part of total government expenditure is best measured by the

Correct Answer
verified

Annually balanced government budgets

Correct Answer
verified

Consider a closed-economy AD/AS macro model.An expansionary fiscal policy will generally increase the governmentʹs budget and also tends to and thus private investment.

Correct Answer
verified
A

The governmentʹs primary budget deficit (or surplus) is the

Correct Answer
verified

Consider the following variables: G = government purchases I = interest rate on government debt D = stock of government debt T = net tax revenue The governmentʹs budget constraint can be expressed as

Correct Answer
verified

The best measure of the change in the stance of a governmentʹs fiscal policy is

Correct Answer
verified

Correct Answer
verified
C

Suppose the governmentʹs budget deficit falls from one year to the next,but there has been no change in the governmentʹs fiscal policy.The change in the budget deficit can be explained by

Correct Answer
verified

Do we get a useful and meaningful statistic by dividing the national debt by the GDP?

Correct Answer
verified

Suppose during one fiscal year,government purchases are $195 billion,debt-service payments are $22 billion and net tax revenues are $208 billion.What is the governmentʹs primary budget deficit/surplus?

Correct Answer
verified

Correct Answer
verified

Consider a closed-economy AD/AS model.If an increase in the governmentʹs budget deficit drives up market interest rates,

Correct Answer
verified

Exam 31: Government Debt and Deficits

Decreasing government expenditures in order to reduce the governmentʹs budget deficit can involve certain costs.An example of such a cost could be

Correct AnswerverifiedB

When a government changes its fiscal policy,it is

Correct AnswerverifiedShow Answer

The Canadian tax and transfer system acts as an automatic stabilizer because

Correct AnswerverifiedShow Answer

If we want to know whether tax revenues are sufficient to finance the discretionary part of government expenditure,which of the following measures should we analyze?

Correct AnswerverifiedShow Answer

Suppose the government decided to ensure that its structural budget deficit was always zero.This policy would be problematic because

Correct AnswerverifiedShow Answer

An annually balanced government budget is a difficult policy goal to achieve because

Correct AnswerverifiedShow Answer

In an open economy like Canadaʹs,a policy -induced increase in the governmentʹs budget deficit tends to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The extent to which tax revenues are able to finance the discretionary part of total government expenditure is best measured by the

Correct AnswerverifiedShow Answer

Annually balanced government budgets

Correct AnswerverifiedShow Answer

Consider a closed-economy AD/AS macro model.An expansionary fiscal policy will generally increase the governmentʹs budget and also tends to and thus private investment.

Correct AnswerverifiedA

The governmentʹs primary budget deficit (or surplus) is the

Correct AnswerverifiedShow Answer

Consider the following variables: G = government purchases I = interest rate on government debt D = stock of government debt T = net tax revenue The governmentʹs budget constraint can be expressed as

Correct AnswerverifiedShow Answer

The best measure of the change in the stance of a governmentʹs fiscal policy is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedC

Suppose the governmentʹs budget deficit falls from one year to the next,but there has been no change in the governmentʹs fiscal policy.The change in the budget deficit can be explained by

Correct AnswerverifiedShow Answer

Do we get a useful and meaningful statistic by dividing the national debt by the GDP?

Correct AnswerverifiedShow Answer

Suppose during one fiscal year,government purchases are $195 billion,debt-service payments are $22 billion and net tax revenues are $208 billion.What is the governmentʹs primary budget deficit/surplus?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Consider a closed-economy AD/AS model.If an increase in the governmentʹs budget deficit drives up market interest rates,

Correct AnswerverifiedShow Answer

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified