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1 | |
During a given year, if the government of Canada's revenues exceeded its expenditures by $5 billion, this would mean that Canada... |
| | A) | Has a balanced budget |
| | B) | Has a budget deficit of $5 billion |
| | C) | Has a budget surplus of $5 billion |
| | D) | Has a total public debt of $5 billion |
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2 | |
If Canada continues to experience budget surpluses over the next three years... |
| | A) | Its public debt will decrease |
| | B) | Its public debt will increase |
| | C) | Its public debt will stay constant |
| | D) | None of the above |
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3 | |
An annually balanced budget... |
| | A) | Will help stabilize the economy when it is in a recession |
| | B) | Will help stabilize the economy when it is in an inflationary period. |
| | C) | Will reduce AD when the economy is suffering from high unemployment and falling incomes, and increase AD when it is suffering from inflation |
| | D) | Will help stabilize the economy because of its counter-cyclical influence on the economy |
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4 | |
The cyclically balanced budget involves... |
| | A) | Raising taxes during a recession, and raising government spending during an inflationary gap to balance the budget. |
| | B) | Balancing the budget over several years through lower taxes and increases in government spending during a recession, and higher taxes and lower government spending during an inflationary gap. |
| | C) | Trying to balance the economy at full employment, regardless of whether or not the budget is balanced. |
| | D) | None of the above |
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5 | |
If "the primary purpose of federal finance is to provide for non-inflationary full employment to balance the economy, not the budget," this is an illustration of... |
| | A) | An annually balanced budget |
| | B) | A cyclically balanced budget |
| | C) | A debt financed budget |
| | D) | Functional finance |
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6 | |
Which of the following is not cause of the Canadian public debt? |
| | A) | Wars |
| | B) | A reduction in the value of the Canadian dollar |
| | C) | Recessions |
| | D) | Lack of Political will |
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7 | |
Which of the following countries has the largest public debt as a percentage of GDP? |
| | A) | Belgium |
| | B) | Italy |
| | C) | Canada |
| | D) | The United States |
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8 | |
Which of the following is true of Canada's public debt? |
| | A) | Most of the debt is held by foreigners |
| | B) | Most of the debt is held by the Bank of Canada |
| | C) | Most of the debt is held by the Canadian public and Chartered banks |
| | D) | None of the above |
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9 | |
Which of the following is true? |
| | A) | As Canada's GDP rises, Canada's public debt as a percentage of GDP will rise as well |
| | B) | Canada's public debt as a percentage of GDP is inversely related to its level of GDP |
| | C) | Interest charges on Canada's debt as a percentage of GDP have fallen since the 1970's. |
| | D) | All of the above |
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10 | |
The existence of inflation... |
| | A) | Increases the size of Canada's public debt |
| | B) | Reduces the size of Canada's public debt |
| | C) | Will have no effect on the size of Canada's public debt. |
| | D) | None of the above |
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11 | |
The large public debt cannot bankrupt the Federal government because... |
| | A) | Public debt can be refinanced by selling new bonds |
| | B) | The government can raise taxes to raise money to pay off the debt |
| | C) | The government, through, the Bank of Canada, can print money to pay the principal and interest on the debt |
| | D) | All of the above |
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12 | |
Which of the following is true of Canada's public debt? |
| | A) | Due to external public debt, Canada transfers goods and services to foreign lenders |
| | B) | The ownership of the public debt is concentrated among poorer groups in society |
| | C) | Annual interest charges have no effect on the Canadian economy |
| | D) | None of the above |
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13 | |
Thinking of the public debt and crowding out... |
| | A) | Deficit financing can increase interest rates, which will reduce business investment. |
| | B) | The effects of extensive crowding out can be passed on to future generations. |
| | C) | If, as a result of the added debt, the profit expectations of businesses are improved, the crowding out effect may be reduced |
| | D) | All of the above |
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14 | |
If the government uses deficit financing for public goods purchases, such as highways, mass transit systems, etc., then... |
| | A) | The crowding out effect will be worsened, leading to a lower stock of capital |
| | B) | The crowding out effect will be offset at least somewhat by "increases in the economy's future production capacity." |
| | C) | There will be no crowding out effect |
| | D) | None of the above |
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15 | |
The recent budget surpluses have been accomplished through ____________ by the Federal government |
| | A) | Increased tax revenues |
| | B) | Reduced government spending |
| | C) | Deficit financing |
| | D) | Choices 1 and 2 only |
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16 | |
An advantage of paying down the public debt with a budget surplus is... |
| | A) | A reverse crowding-out effect, in which interest rates fall and business investment, is restored. |
| | B) | Net exports will increase |
| | C) | Demand-pull inflation will be reduced. |
| | D) | None of the above |
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17 | |
Given that deficits are now in check, and the Canadian government is running a budget surplus, one would expect... |
| | A) | The absolute value of the debt to fall in future years |
| | B) | The absolute value of interest payments to fall in future years |
| | C) | The debt and interest payments, as a percentage of GDP, to fall in future years. |
| | D) | Canada to have a large crowding out effect in future years. |
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18 | |
If the government cuts income taxes, then... |
| | A) | Surplus revenues are returned directly to taxpayers |
| | B) | Budget deficits may result |
| | C) | Aggregate demand will be negatively affected |
| | D) | None of the above |
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19 | |
One argument against tax cuts is... |
| | A) | That they can restore the economy to full employment by increasing aggregate demand. |
| | B) | That they can cause a budget deficit, and increase the debt. |
| | C) | That they could be better used to pay down the debt, or increase government spending on health care and education. |
| | D) | None of the above |
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20 | |
Suppose that the Canadian government decides to use $1 billion of its budget surplus to pay down the federal debt. The opportunity cost of this decision is... |
| | A) | Tax cuts of $1 billion |
| | B) | Health care spending of $1 billion |
| | C) | $1 billion worth of social housing. |
| | D) | Each choice may be a potential opportunity cost, depending upon which one is the best alternative forgone as a result of paying down the debt. |
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2002 McGraw-Hill Higher Education