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1
What is fiscal policy?
A)It is government’s policy on spending.
B)It is government’s policy on taxation.
C)It is government’s policy on both spending and taxation.
D)It is the central bank’s policy on interest rates.
2
Which of the following will close an inflationary gap?
A)An increase in government spending
B)A decrease in government spending
C)A decrease in taxes
D)An increase in exports
3
To what group is the largest portion of the national debt owed?
A)The Canadian public, that is, individuals, businesses, and banks in Canada
B)Foreign individuals, banks, and businesses
C)The Bank of Canada
D)The government of Canada
4
What is net tax revenue?
A)It is the total of all taxes collected by government.
B)It is the total of all taxes collected by government minus spending by government on goods and services.
C)It is the total of all taxes collected by government plus transfer payments.
D)It is the total of all taxes collected by government minus transfer payments.
5
When does a government budget surplus exist?
A)When government spending of all types exceeds net tax revenue
B)When net tax revenue is less than government spending of all types
C)When government spending on goods and services exceeds net tax revenue
D)When net tax revenue exceeds government spending on goods and services
6
What is true about the national debt since the 1960s?
A)It has grown both absolutely and as a percentage of GDP.
B)It has grown absolutely but has declined as a percentage of GDP.
C)It has grown absolutely but remained constant as a percentage of GDP.
D)It has declined absolutely but increased as a percentage of GDP.
7
What is the effect of a countercyclical fiscal policy?
A)It intensifies changes in GDP caused by the business cycle.
B)It dampens changes in GDP caused by the business cycle.
C)It has no effect on changes in GDP caused by the business cycle.
D)It allows a government to balance its budget.
8
What would cause the aggregate demand curve to shift to the right?
A)An increase in taxes
B)A decrease in government spending on goods and services
C)An increase in net tax revenues
D)Countercyclical fiscal policy used to eliminate a recessionary gap
9
What can cause an upward (left) shift in the budget line?
A)An increase in GDP
B)An increase in taxes
C)An increase in government spending
D)A decrease in taxes
10
Which of the following statements about countercyclical fiscal policy is correct?
A)It is an appropriate policy response to a recessionary gap but not to an inflationary gap.
B)It is an appropriate policy response to an inflationary gap but not to a recessionary gap.
C)It involves only higher government spending.
D)It involves only higher taxes.
E)It is the use of spending or taxation policies by government to push the economy in a direction opposite to the way it was moving.
11
Which of the following did not occur in the great depression of the thirties?
A)Unemployment rose to historical highs
B)Interest rates rose to historical highs
C)Investment spending dropped to dramatic lows
D)International trade nearly disappeared
12
What are automatic stabilizers?
A)Imports and exports that automatically change with the state of the economy so as to stabilize the economy
B)Investment spending that automatically changes with the state of the economy to stabilize the economy
C)Tax provisions and government spending program that automatically put spending into a recessionary economy and take it out in a boom economy
D)Consumption spending that automatically changes with the state of the economy to stabilize the economy
13
What is a cyclically balanced budget fiscal policy?
A)A policy of balancing the budget each fiscal year
B)A policy of using the budget to balance the economy each fiscal year
C)A policy of balancing the budget over the life of the business cycle
D)A policy of using the budget to balance the economy over the life of the business cycle
14

Refer to Figure 7.9 to answer this question. Which of the following statements is verified by the graph?
A)A budget surplus exists if government spending is G1 and real GDP is Y1.
B)A budget deficit exists if government spending is G1 and real GDP is Y1.
C)If government spending was reduced from G1 to G2, the budget surplus at Y2 would decrease.
D)NTR is a function of the level of government spending.





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