Question 1

Consider the governmentʹs budget deficit function.Other things being equal,an autonomous increase in government purchases causes the budget deficit function.

Accepted Answer

An autonomous increase in government purchases, which means an increase in government spending that is not in response to any specific economic situation, would result in an upward shift of the government's budget deficit function. This is because the expenditure side of the budget would increase, leading to a higher deficit at every level of revenue.

Question 2

The diagram below shows the budget deficit function for a government in a hypothetical economy.
  FIGURE 31-1
-Refer to Figure 31-1.Initially,suppose real GDP is $100 million and the budget deficit is $4 million,as shown by point A.If the government implements an expansionary fiscal policy by increasing its purchases of goods and services,then

Accepted Answer

An expansionary fiscal policy would increase government purchases, which would result in an increase in the budget deficit. This would cause the budget deficit function to shift up, from the initial position at point A to a new position at point B. Therefore, the correct answer is D.

Question 3

Consider the governmentʹs budget deficit function over a two-year time span - Years 1 and 2.Suppose in Year 2 there was a lower federal budget deficit than in Year 1.This could be explained by ________ in Year 2.

Accepted Answer

If real GDP is higher in Year 2 (compared to Year 1) with constant fiscal policy, then tax revenue will increase due to the higher economic activity, which would lead to a decrease in the budget deficit.

Question 4

The diagram below shows the budget deficit function for a government in a hypothetical economy.
  FIGURE 31-1
-Refer to Figure 31-1.Initially,suppose real GDP is $100 million and the budget deficit is $4 million,as shown by point A.If the government implements an expansionary fiscal policy by decreasing lump -sum taxes,then

Accepted Answer

Decreasing lump-sum taxes as part of an expansionary fiscal policy would increase the budget deficit because government revenues would decrease while spending remains constant, thus shifting the budget deficit function upward.

Question 5

Suppose during one fiscal year,government purchases are $195 billion,debt-service payments are $22 billion and net tax revenues are $208 billion.What is the governmentʹs primary budget deficit/surplus?

Accepted Answer

The primary budget surplus is calculated by subtracting government purchases from net tax revenues, ignoring debt-service payments. So, $208 billion (net tax revenues) - $195 billion (government purchases) = $13 billion surplus.

Question 6

The Canadian federal government had a budget surplus each year from________ until 2008.

Accepted Answer

The Canadian federal government had a budget surplus each year from the fiscal year 1998-1999 until the fiscal year 2007-2008. Therefore, the correct answer is D) 1998.

Question 7

Consider the governmentʹs budget deficit function.With an unchanged fiscal policy by government,an increase in GDP tends to net tax revenues and thus the budget deficit.

Accepted Answer

An increase in GDP would tend to increase net tax revenues, as people earn more income and pay more in taxes. Therefore, if fiscal policy remains unchanged, this increase in tax revenue would lead to a lower budget deficit (or even a surplus). Option B is the correct choice, as it states that an increase in GDP would lower the budget deficit, which is consistent with the logic outlined above. Options A, C, D, and E are all incorrect.

Question 8

Suppose during one fiscal year,government purchases are $195 billion,debt-service payments are $22 billion and net tax revenues are $208 billion.What is the annual budget deficit/surplus?

Accepted Answer

Budget deficit/surplus can be calculated as follows:
Budget deficit/surplus = (Net tax revenues + Debt-service payments) - Government purchases
= ($208 billion + $22 billion) - $195 billion
= $230 billion - $195 billion
= $35 billion deficit
Therefore, the answer is D, budget deficit of $9 billion.

Question 9

The diagram below shows the budget deficit function for a government in a hypothetical economy.
  FIGURE 31-1
-Refer to Figure 31-1.Initially,suppose real GDP is $100 million and the budget deficit is $4 million,as shown by point A on the graph.Which of the following is consistent with a move from point A to point B?

Accepted Answer

The answer of The diagram below shows the budget deficit...

Question 10

If the governmentʹs total budget deficit is $24 billion and its debt -service payments are $20 billion,then its ________ is $4 billion.

Accepted Answer

The primary budget deficit refers to the government's deficit before taking into account debt-service payments. In this case, the debt-service payments are $20 billion, so the primary budget deficit would be the total deficit ($24 billion) minus the debt-service payments ($20 billion), giving a primary budget deficit of $4 billion.

Question 11

Consider the governmentʹs budget deficit function,graphed with the budget deficit on the vertical axis and real GDP on the horizontal axis.The vertical position (or height)of the budget deficit function is determined by

Accepted Answer

The government's fiscal policies determine the level of government spending and taxation, which in turn determine the level of budget deficit or surplus. Therefore, the vertical position of the budget deficit function is determined by the government's fiscal policies.

Question 12

Consider the governmentʹs budget deficit function.If the economy goes into a recession,a government budget deficit is most likely to

Accepted Answer

During a recession, government expenditures will typically increase due to automatic stabilizers (e.g. increased spending on unemployment benefits) and deliberate discretionary fiscal policy (such as increased infrastructure spending to stimulate growth). At the same time, tax revenues will decline as people and businesses earn less income and therefore pay less in taxes. This leads to an increase in the government's budget deficit.

Question 13

The diagram below shows the budget deficit function for a government in a hypothetical economy.
  FIGURE 31-1
-Refer to Figure 31-1.Initially,suppose real GDP is $100 million and the budget deficit is $4 million,as shown by point A.If the government implements a contractionary fiscal policy by decreasing its purchases of goods and services,then

Accepted Answer

A contractionary fiscal policy (decreasing government purchases) would decrease the level of real GDP and thus decrease tax revenues, causing the budget deficit function to shift down. Therefore, the best choice is B.

Question 14

Suppose the governmentʹs budget deficit falls from one year to the next,but there has been no change in the governmentʹs fiscal policy.The change in the budget deficit can be explained by

Accepted Answer

A falling budget deficit without a change in fiscal policy could be due to a rise in real GDP, which would increase tax revenue and decrease transfers and government spending.

Question 15

Consider the governmentʹs budget deficit function,graphed with dollars on the vertical axis and real GDP on the horizontal axis.This function is downward sloping because as real GDP

Accepted Answer

As real GDP rises, tax revenues typically increase because individuals and businesses earn more, leading to higher income and corporate tax collections. This increase in tax revenues can decrease the budget deficit or increase the surplus, assuming government spending does not increase proportionately.

Question 16

The budget deficit function is graphed with the budget deficit on the vertical axis and ________ on the horizontal axis, and is ________.

Accepted Answer

The budget deficit increases as real GDP decreases, meaning that the curve is downward sloping, and thus, the correct answer is A. The interest rate does have some impact on the budget deficit, but it is not the primary determinant of the deficit, which is why options C, D, and E are incorrect.

Question 17

If the governmentʹs total budget surplus is $10 billion and its debt-service payments are $8 billion,then its primary budget surplus is

Accepted Answer

The answer of If the governmentʹs total budget surplus is...

Question 18

Consider the budget deficit function.With an unchanged fiscal policy by government,an increase in national income causes ________ the budget deficit function.

Accepted Answer

The answer of Consider the budget deficit function.With an unchanged...

Question 19

Suppose the stock of government debt in Canada at the end of one fiscal year (Year 1)is $475 billion.During the following year (Year 2),government purchases were $180 billion,debt -service payments were $25 billion,and net tax revenues were $208 billion.What is the stock of debt at the end of Year 2?

Accepted Answer

The answer of Suppose the stock of government debt in...

Question 20

Suppose the stock of government debt in Canada at the end of one fiscal year is $475 billion.If the stock of debt rises to $482 billion by the end of the next fiscal year,then we know that in that year

Accepted Answer

The increase in debt from $475 billion to $482 billion indicates that the government spent more than it earned in revenue during the year, resulting in an annual budget deficit of $7 billion.

Quiz 31: Government Debt and Deficits