Question 1

Do automatic fiscal stabilisers eliminate business cycles?

Accepted Answer

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.F) B) and C)
G) All of the above

Question 2

The structural deficit or surplus is the

Accepted Answer

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.F) A) and E)
G) B) and E)

Question 3

Which of the following are influences the budget has on potential GDP?
i.Government spending on infrastructure such as roads
ii.The collection of taxes
iii.Government spending on public goods to enhance productivity

Accepted Answer

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

Question 4

The supply-side effects of a change in taxes on labour income mean that ________ in taxes on labour income shifts the ________.

Accepted Answer

A)  a decrease;labour demand curve leftward
B)  an increase;labour supply curve rightward
C)  an increase;labour supply curve leftward and the labour demand curve rightward
D)  an increase;labour supply curve leftward
E)  a decrease;labour demand curve rightwardF) A) and B)
G) C) and D) D

Question 5

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

Accepted Answer

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.F) C) and D)
G) A) and D)

Question 6

Increasing the income tax rate ________ the before-tax real wage rate and ________ the after-tax real wage rate.

Accepted Answer

A)  raises;lowers
B)  raises;raises
C)  lowers;lowers
D)  lowers;raises
E)  does not change;raisesF) A) and B)
G) None of the above

Question 7

The Commonwealth government's revenue is made up from

Accepted Answer

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.F) A) and D)
G) None of the above

Question 8

There are four limitations to the effectiveness of discretionary fiscal policy.Which item below is NOT one of these limitations?

Accepted Answer

A)  The fiscal multiplier
B)  The shrinking area of Parliamentary discretion
C)  The legislation time lag
D)  Estimating potential GDP
E)  Errors in economic forecastingF) A) and D)
G) None of the above

Question 9

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

Accepted Answer

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.F) C) and D)
G) A) and D)

Question 10

The standard view in economics is that tax cuts without ________ will ________ the budget deficit resulting in ________.

Accepted Answer

A)  spending cuts;decrease;crowding out investment
B)  increasing spending;increase;crowding out investment
C)  increasing spending;decrease;unemployment
D)  spending cuts;increase;crowding out investment
E)  spending cuts;decrease;unemploymentF) None of the above
G) C) and D)

Question 11

When taxes are cut,aggregate demand ________ and aggregate supply ________.

Accepted Answer

A)  increases;increases
B)  decreases;increases
C)  increases;decreases
D)  decreases;decreases
E)  increases;does not changeF) D) and E)
G) A) and B) A

Question 12

The balanced budget multiplier is

Accepted Answer

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.F) B) and E)
G) C) and D)

Question 13

The interest rate tax wedge ________ the quantity of savings and investment and ________ the growth rate of real GDP.

Accepted Answer

A)  decreases;slows
B)  increases;slows
C)  does not change;raises
D)  does not change;does not change
E)  decreases;raisesF) A) and C)
G) B) and E)

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

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.F) C) and D)
G) A) and C) C

Question 16

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

Accepted Answer

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.F) D) and E)
G) B) and D)

Question 17

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

Accepted Answer

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.F) None of the above
G) C) and E)

Question 18

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.

Accepted Answer

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

Question 19

The structural deficit is the deficit

Accepted Answer

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.F) A) and B)
G) A) and E)

Question 20

The government debt is

Accepted Answer

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.F) D) and E)
G) A) and B)

Exam 14: Fiscal Policy

Do automatic fiscal stabilisers eliminate business cycles?

Correct AnswerverifiedShow Answer

The structural deficit or surplus is the

Correct AnswerverifiedShow Answer

Which of the following are influences the budget has on potential GDP? i.Government spending on infrastructure such as roads ii.The collection of taxes iii.Government spending on public goods to enhance productivity

Correct AnswerverifiedShow Answer

The supply-side effects of a change in taxes on labour income mean that ________ in taxes on labour income shifts the ________.

Correct AnswerverifiedD

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

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Increasing the income tax rate ________ the before-tax real wage rate and ________ the after-tax real wage rate.

Correct AnswerverifiedShow Answer

The Commonwealth government's revenue is made up from

Correct AnswerverifiedShow Answer

There are four limitations to the effectiveness of discretionary fiscal policy.Which item below is NOT one of these limitations?

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

Correct AnswerverifiedShow Answer

The standard view in economics is that tax cuts without ________ will ________ the budget deficit resulting in ________.

Correct AnswerverifiedShow Answer

When taxes are cut,aggregate demand ________ and aggregate supply ________.

Correct AnswerverifiedA

The balanced budget multiplier is

Correct AnswerverifiedShow Answer

The interest rate tax wedge ________ the quantity of savings and investment and ________ the growth rate of real GDP.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The structural deficit is the deficit

Correct AnswerverifiedShow Answer

The government debt is

Correct AnswerverifiedShow Answer

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The supply-side effects of a change in taxes on labour income mean that in taxes on labour income shifts the .

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D

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Increasing the income tax rate the before-tax real wage rate and the after-tax real wage rate.

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The standard view in economics is that tax cuts without will the budget deficit resulting in .

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When taxes are cut,aggregate demand and aggregate supply .

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A

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The interest rate tax wedge the quantity of savings and investment and the growth rate of real GDP.

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

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C

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