 |
1 | |
Fiscal policy involves changes in... |
| | A) | Real interest rates and taxation |
| | B) | Government spending and the value of the Canadian dollar |
| | C) | Government spending and taxation. |
| | D) | None of the above |
|
|
2 | |
Which of the following is an example of expansionary fiscal policy? |
| | A) | A decrease in real interest rates |
| | B) | An increase in income tax rates |
| | C) | An increase in government spending |
| | D) | None of the above |
|
|
3 | |
Which of the following fiscal policies would help restore the Canadian economy to full employment if it were in a recessionary gap? |
| | A) | A tax cut, since it would shift AD rightward by increasing C and Ig |
| | B) | A tax increase, since it would shift AD leftward by decreasing C and Ig |
| | C) | A decrease in government spending, since it would shift AD rightward by increasing G |
| | D) | An increase in taxes and a decrease in government spending used at the same time |
|
|
4 | |
When would a contractionary fiscal policy help restore full employment? |
| | A) | When the economy is at potential GDP |
| | B) | When the economy is in an inflationary gap |
| | C) | When the economy is in a recessionary gap |
| | D) | When the economy's unemployment rate is higher than the natural rate of unemployment |
|
|
5 | |
Suppose that the economy is in an inflationary gap. A decrease in taxes... |
| | A) | Will increase disposable income, consumption spending, and AD, which will shift rightward and close the inflationary gap. |
| | B) | Will decrease disposable income, consumption spending, and AD, which will shift leftward, and close the inflationary gap. |
| | C) | Will increase disposable income, consumption spending, and AD, which will shift rightward and widen the inflationary gap |
| | D) | Will decrease disposable income, consumption spending, and AD, which will shift rightward and widen the inflationary gap. |
|
|
6 | |
If taxation income exceeds government spending for a given year, the economy is experiencing... |
| | A) | A budget deficit |
| | B) | A budget surplus |
| | C) | A balanced budget |
| | D) | None of the above |
|
|
7 | |
If an economist felt that government was too large and inefficient, she would usually... |
| | A) | Recommend tax increases in times of demand-pull inflation and increased government spending during recessions. |
| | B) | Recommend tax cuts during times of demand-pull inflation and increased government spending during recessions |
| | C) | Recommend tax cuts in a recession, and reduced government spending during times of demand-pull inflation. |
| | D) | Recommend none of the above |
|
|
8 | |
Which of the following is an example of a built-in stabilizer that helps automatically stabilize the economy? |
| | A) | The income tax system |
| | B) | Welfare payments |
| | C) | Unemployment compensation programs |
| | D) | All of the above |
|
|
9 | |
Which of the following is true? |
| | A) | As GDP increases, taxation revenues will fall |
| | B) | As GDP decreases, taxation revenues will rise |
| | C) | Tax revenues automatically rise as GDP rises, and fall as GDP falls. |
| | D) | None of the above |
|
|
10 | |
Country X's income tax system is such that a person pays 18% federal tax on the 1st $30,000 of income earned, and 24% for every dollar of income earned above $30,000. If Harold earns $26,200 per year, while Eddie earns $38,250, then Harold will pay federal tax of $_____ and Eddie will pay federal tax of $______ |
| | A) | $4716, $6885 |
| | B) | $5200, $7500 |
| | C) | $4716, $7380 |
| | D) | None of the above |
|
|
11 | |
If the average tax rate decreases as the taxpayer's income increases, and increases as the taxpayer's income decreases, then such a tax is said to be... |
| | A) | Progressive in nature |
| | B) | Regressive in nature |
| | C) | Proportional in nature |
| | D) | Neutral in nature. |
|
|
12 | |
Refer to question 10 above. The average tax rate paid by each taxpayer _______ as their income increases. This means that the income tax system is _______ |
| | A) | Increases; progressive |
| | B) | Decreases; regressive |
| | C) | Increases; proportional |
| | D) | None of the above |
|
|
13 | |
If the economy is initially at a point where G=T, and a recession occurs and pushes tax revenue below the level of government spending... |
| | A) | A budget surplus will occur. |
| | B) | A budget deficit will occur. |
| | C) | A cyclical deficit will occur |
| | D) | A balanced budget will occur. |
|
|
14 | |
The fact that it often takes time for a recession or inflation to be identified by an economist, thus causing fiscal policy to be introduced later than desired is called... |
| | A) | An administrative lag |
| | B) | A recognition lag |
| | C) | An operational lag |
| | D) | None of the above |
|
|
15 | |
A political business cycle occurs when politicians... |
| | A) | Reduce government spending to try and impress voters before an election. |
| | B) | Lower taxes before an election to impress voters, then increase government spending after the election to reduce demand-pull inflation |
| | C) | Increasing government spending and reducing taxes to impress voters before an election. This causes demand-pull inflation after the election. |
| | D) | None of the above |
|
|
16 | |
The crowding-out effect occurs when... |
| | A) | The government reduces its spending, thus decreasing the demand for money, and the interest rate |
| | B) | Consumption spending increases, which raises the demand for money, and interest rates. This reduces the level of business investment spending |
| | C) | Business investment increases as a result of lower interest rates |
| | D) | The government finances increases in spending with money borrowed from the money market. This increases the demand for money, which increases the interest rate, and reduces business investment. |
|
|
17 | |
For an expansionary fiscal policy, such as tax cuts, ... |
| | A) | The value of the Canadian dollar will rise, and net exports will increase. |
| | B) | The value of the Canadian dollar will fall, and net exports will decrease. |
| | C) | The value of the Canadian dollar will increase and net exports will decrease. |
| | D) | The value of the Canadian dollar will fall and net exports will increase. |
|
|
18 | |
An economist notices that the value of the Canadian dollar begins dropping after the Canadian government puts a fiscal policy in place. This policy was likely... |
| | A) | An increase in taxes |
| | B) | An increase in government spending |
| | C) | A decrease in taxes |
| | D) | None of the above |
|
|
19 | |
Which of the following is true of supply-side fiscal policy? |
| | A) | It argues that a tax cut will stimulate Aggregate supply as well as aggregate demand, which will increase Real GDP and reduce inflation. |
| | B) | It argues that tax cuts will increase savings and investment, as well as work incentives and risk taking. |
| | C) | It argues that lower taxes may not result in lower tax revenues, since the expansionary effects of higher income and Real GDP will increase the government's tax base. |
| | D) | All of the above |
|
|
20 | |
Suppose that the Canadian economy is in an inflationary gap. If the government increases taxes, then, according to supply-side fiscal policy... |
| | A) | AD will fall, but AS will increase |
| | B) | AD will rise, but AS will fall |
| | C) | Both AD and AS will fall |
| | D) | Both AD and AS will rise |
|
|
21 | |
Because of operational lags, |
| | A) | It takes some time for action to be taken after the need for fiscal action is recognized. |
| | B) | Changes in tax rates are preferred to spending changes, as they take less time to work. |
| | C) | Government does not use fiscal policy very often |
| | D) | None of the above |
|
|
22 | |
The Canadian GST is an example of... |
| | A) | A progressive tax |
| | B) | A regressive tax |
| | C) | A proportional tax |
| | D) | A neutral tax |
|
2002 McGraw-Hill Higher Education