Question 1

Other things equal,an increase in transfer payments will ________ consumption expenditures,which leads to ________ in output and employment.

Accepted Answer

An increase in transfer payments will increase disposable income and thus increase consumption expenditures, leading to an increase in output and employment through the multiplier effect.

Question 2

The automatic budget deficits and budget surpluses that occur in the federal budget over the business cycle

Accepted Answer

Automatic budget deficits and surpluses occur as a result of changes in the business cycle. During periods of economic expansion, tax revenues increase and government spending on social welfare programs decreases, leading to a budget surplus. Conversely, during times of recession, tax revenues decrease and government spending on social welfare programs increases, resulting in a budget deficit. These automatic stabilizers help to offset the fluctuations in private sector spending and collectively stabilize the economy.

Question 3

Other things equal,which of the following will lead to an increase in output and employment?

Accepted Answer

The tax incentive for firms that employ returning war veterans will increase employment by encouraging firms to hire more workers.

Question 4

Expansionary fiscal policy would involve ________,whereas contractionary fiscal policy would involve ________.

Accepted Answer

Expansionary fiscal policy involves increasing transfer payments to stimulate the economy, while contractionary fiscal policy involves increasing corporate income taxes to reduce economic activity.

Question 5

A key reason that most people did not anticipate the severity of the Great Recession is that

Accepted Answer

The Great Recession was primarily caused by a financial crisis stemming from the housing market, and many people did not anticipate the severity of the crisis because they failed to see it coming. There were warning signs, such as the subprime mortgage crisis, but many people underestimated the potential impact of these issues on the broader economy. Choices A, B, and D may have been factors in people's expectations about the economy, but they were not the primary reason why most people did not anticipate the severity of the Great Recession.

Question 6

The deliberate change in taxes,transfer payments,or government expenditures to achieve macroeconomic policy objectives is known as

Accepted Answer

Discretionary fiscal policy is the intentional use of government spending, taxation, and transfer payments to achieve specific macroeconomic goals such as economic growth and low unemployment. Expansionary fiscal policy refers to increasing government spending or reducing taxes to stimulate economic activity, while contractionary fiscal policy involves decreasing government spending or increasing taxes to slow down economic growth. Automatic stabilizers are features of the economy that automatically help to stabilize economic fluctuations without the need for explicit government action, such as unemployment benefits and progressive income taxes.

Question 7

Which of the following would be classified as fiscal policy?

Accepted Answer

Fiscal policy refers to actions taken by the government, specifically related to spending and taxation, in order to influence the economy. Thus, the only option that represents a government action related to taxation (the federal government lowering tax rates to stimulate the economy) is an example of fiscal policy. The other options are not related to government spending or taxation, and therefore are not examples of fiscal policy.

Question 8

Historically,the largest Canadian federal budget deficits as a percentage of GDP in the last 50 years occurred between

Accepted Answer

The largest Canadian federal budget deficits as a percentage of GDP in the last 50 years occurred between 1980-1985, when the deficits ranged from 5.6% to 8.3% of GDP. This period was marked by a global recession, high unemployment rates, and high interest rates, which all contributed to the significant deficits.

Question 9

What is the goal of fiscal policy,and what tools have policymakers traditionally used to conduct fiscal policy?

Accepted Answer

The answer of What is the goal of fiscal policy,and...

Question 10

For each of the following situations,choose a fiscal policy and explain how it could be used to correct the economic problem.
a. Real GDP is below potential GDP following a financial market crisis.
b. A positive demand shock increases aggregate expenditure beyond the full employment level and leads to fears of rising inflation.
c. The economy is in a recession due to rising defaults on mortgages following the bursting of a housing bubble.

Accepted Answer

The answer of For each of the following situations,choose a...

Question 11

Which of the following would not be considered an automatic stabilizer?

Accepted Answer

Automatic stabilizers are government policies or programs that automatically adjust to stabilize the economy, without the need for additional government action. Choices A, B, and D are all examples of automatic stabilizers. However, legislation increasing funding for job retraining is not an automatic stabilizer, as it requires additional government action to be implemented.

Question 12

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession are examples of

Accepted Answer

The increase in taxes collected during an expansion and the decrease during a recession are examples of automatic stabilizers. Automatic stabilizers are features built into the tax and transfer system that automatically stabilize disposable income without any additional legislative action. This is different from discretionary fiscal policy, which involves intentional changes made by the government to stimulate or contract the economy.

Question 13

Explain the differences between expansionary and contractionary fiscal policies,and list the typical actions that are used for expansionary and contractionary fiscal policies.

Accepted Answer

The answer of Explain the differences between expansionary and contractionary...

Question 14

The goal of fiscal policy is to ________,and typically focuses on ________.

Accepted Answer

Fiscal policy aims to use government spending and taxation to influence economic activity and reduce the severity of economic fluctuations, with a focus on promoting employment and production. Options A, B, and D do not accurately reflect the main goal or focus of fiscal policy.

Question 15

Fiscal policy refers to changes in

Accepted Answer

Fiscal policy refers to changes in government spending, taxation, and transfer payments with the aim of influencing macroeconomic conditions such as inflation, economic growth, and employment. Therefore, option B accurately describes the changes that fiscal policy seeks to achieve.

Question 16

Other things equal,an increase in corporate income taxes will ________ the after-tax profitability of investment projects,which leads to ________ in output and employment.

Accepted Answer

An increase in corporate income taxes will decrease the after-tax profitability of investment projects, which will lead to a decrease in output and employment. This is because higher taxes will lower the incentive for companies to invest, and they may choose to reduce investment and hiring instead.

Question 17

Other things equal,a decrease in the personal income tax rate will ________ disposable income,which leads to ________ in output and employment.

Accepted Answer

When the personal income tax rate decreases, disposable income increases. This increase in disposable income leads to an increase in consumer spending, which in turn stimulates aggregate demand and increases output and employment.

Question 18

Holding all else constant,a decrease in consumption taxes,such as sales taxes or a VAT,will ________ aggregate expenditure and ________ employment.

Accepted Answer

A decrease in consumption taxes will increase households' disposable income, leading to an increase in consumption spending. This increase in consumer spending will lead to an increase in aggregate expenditure which stimulates an increase in demand for goods and services. As a result, firms may have to hire more workers, thus leading to an increase in employment.

Question 19

Changes in taxes,transfer payments,or government expenditures that naturally occur with the business cycle are known as

Accepted Answer

Changes in taxes, transfer payments, or government expenditures that occur automatically with the business cycle are known as automatic stabilizers. These stabilizers help to reduce the amplitude of fluctuations in the economy by dampening the effects of economic shocks without requiring government intervention, which is why they are called automatic.

Question 20

Holding all else constant,an increase in consumption taxes,such as sales taxes or a VAT,will ________ the price of consumption goods and ________ output.

Accepted Answer

An increase in consumption taxes will increase the price of consumption goods for consumers. This is because producers will pass on the burden of the tax to the consumers in the form of higher prices. This will lead to a decrease in demand for consumption goods, which will in turn decrease output. Therefore, an increase in consumption taxes will increase the price of consumption goods and decrease output.

Quiz 13: Fiscal Policy in the Short Run

Other things equal,an increase in transfer payments will consumption expenditures,which leads to in output and employment.

The automatic budget deficits and budget surpluses that occur in the federal budget over the business cycle

Other things equal,which of the following will lead to an increase in output and employment?

Expansionary fiscal policy would involve ,whereas contractionary fiscal policy would involve .

A key reason that most people did not anticipate the severity of the Great Recession is that

The deliberate change in taxes,transfer payments,or government expenditures to achieve macroeconomic policy objectives is known as

Which of the following would be classified as fiscal policy?

Historically,the largest Canadian federal budget deficits as a percentage of GDP in the last 50 years occurred between

What is the goal of fiscal policy,and what tools have policymakers traditionally used to conduct fiscal policy?

Which of the following would not be considered an automatic stabilizer?

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession are examples of

Explain the differences between expansionary and contractionary fiscal policies,and list the typical actions that are used for expansionary and contractionary fiscal policies.

The goal of fiscal policy is to ,and typically focuses on .

Fiscal policy refers to changes in

Other things equal,an increase in corporate income taxes will the after-tax profitability of investment projects,which leads to in output and employment.

Other things equal,a decrease in the personal income tax rate will disposable income,which leads to in output and employment.

Holding all else constant,a decrease in consumption taxes,such as sales taxes or a VAT,will aggregate expenditure and employment.

Changes in taxes,transfer payments,or government expenditures that naturally occur with the business cycle are known as

Holding all else constant,an increase in consumption taxes,such as sales taxes or a VAT,will the price of consumption goods and output.