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Multiple Choice Quiz
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1.
All of the following can be considered as examples of discretionary fiscal policy EXCEPT:
A)An increase in government deficit resulting from a decision to increase expenditure on the armed forces
B)A reduction in government expenditures resulting from a fall in cyclical unemployment
C)An increase in government revenues resulting from a decision to increase the rate of Value Added Tax.
D)An increase in government expenditures resulting from a decision to make payments to home-makers.
E)An increase in government revenues resulting from a decision to charge for hospital visits.
2.
All of the following can be considered as examples of automatic stabiliser effects EXCEPT:
A)A reduction in the government deficit resulting from an autonomous rise in consumer expenditure.
B)An increase in the government deficit resulting from an autonomous fall in net exports.
C)An increase in the government deficit resulting from a rise in cyclical unemployment
D)An increase in the government deficit resulting from an increase in the amount paid to each person unemployed
E)A reduction in the government deficit resulting from a fall in structural unemployment.
3.
Which of the following correctly defines the balanced budget multiplier?
A)The value of the income expenditure multiplier when an increase in G is financed by an equal increase in T.
B)The value of the income expenditure multiplier when an increase in G is financed by an equal increase in government borrowing.
C)The value of the income expenditure multiplier when G = T.
D)The value of the income expenditure multiplier when actual output equals potential output.
E)The value of the income expenditure multiplier when G = T and actual output equals potential output.
4.
In a particular economy the marginal propensity to consume is c = 0.6 and net taxes are autonomous. The government can close a €1,500 million recessionary gap by increasing G by ____ OR reducing T by ____.
A)€1,000 million; €600 million
B)€600 million; € 500 million
C)€600 million; €1,000 million
D)€500 million; €1,000 million
E)€1,500 million; €1,500 million
5.
The consumption function is C = 500 – 0.75(Y – T) where T = net taxes. A €100 million increase in transfer payments will change short-run equilibrium output by:
A)-€400 million
B)€400 million
C)€300 million
D)-€300 million
E)Zero because transfer payments are not part of GDP
6.
The balanced budget multiplier will equal 1:
A)At all levels of output.
B)Only when the government’s budget is balanced
C)Only when actual output equals potential output.
D)Only when the government’s budget is balanced and actual output equals potential output.
E)Only when net exports are zero.
7.
The cyclically adjusted budget deficit:
A)Measures the average government deficit over the course of the business cycle
B)Equals the excess of government expenditure over tax revenues
C)Excludes transfer payments from the government deficit
D)Cleans out the effect of automatic changes on the government deficit
E)Cleans out the effect of discretionary policy on the government deficit
8.
In a particular economy the marginal propensity to consume c = 0.9 and net taxes are T = (1/3)Y. To close an expansionary gap equal to €1,000 million the government would have to reduce autonomous expenditure by:
A)€10 million
B)€400 million
C)€300 million
D)€600 million
E)€900 million
9.
One potential drawback in using fiscal policy to stabilise the economy is that fiscal policy:
A)Is weakened by automatic stabilisers.
B)Does not affect aggregate demand.
C)Is not effective in dealing with deep and prolonged recessions
D)Is only effective when increases in the government deficit are financed by borrowing.
E)Is not always flexible enough to deal with short-run stabilisation.
10.
The Eurosystem’s Stability and Growth Pact aims at:
A)Limiting the size of government deficits
B)Limiting the size of cyclically adjusted government deficits
C)Moderating the impact of automatic stabilisers
D)Ensuring that all increases in government deficits are financed by higher taxation
E)Balanced budgets over all phases of the business cycle





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