Question 1

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

Accepted Answer

A decrease in the budget deficit without a change in fiscal policy can only be explained by an increase in real GDP, which would lead to higher tax revenues and lower welfare spending, resulting in a lower deficit.

Question 2

The diagram below shows two budget deficit functions for a hypothetical economy.  FIGURE 31-2
-Refer to Figure 31-2.Initially,suppose real GDP is $100 million and the budget deficit is $14 million,as shown by point A.Which of the following events could result in a move from point A to point C?

Accepted Answer

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

Question 3

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

An expansionary fiscal policy by decreasing lump-sum taxes would increase the budget deficit at each level of GDP, causing the budget deficit function to shift up.

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 a contractionary fiscal policy by decreasing its purchases of goods and services,then

Accepted Answer

Decreasing the government's purchases of goods and services (which decreases government spending) would lead to a decrease in aggregate demand and a decrease in real GDP. As real GDP falls, tax revenue will also fall, leading to an increase in the budget deficit. This means that the budget deficit function would shift down, as shown in the diagram. Therefore, the correct answer is choice B.

Question 5

Consider the government's 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 means that government purchases increase without any corresponding change in other variables. This would result in an increase in the government's budget deficit independent of other factors, which would cause an upward shift of the budget deficit function.

Question 6

The diagram below shows two budget deficit functions for a hypothetical economy.  FIGURE 31-2
-Refer to Figure 31-2.Initially,suppose the economy is at point A.If the government were to then implement a fiscal expansion,the structural budget deficit would be

Accepted Answer

Without the specific details of Figure 31-2, such as the axes, labels, and the position of point A, it is impossible to determine the structural budget deficit after a fiscal expansion.

Question 7

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 is typically larger when the economy is in a recession and real GDP is lower, so the horizontal axis should be real GDP. The budget deficit function is typically downward sloping because when real GDP increases, tax revenues increase and government spending on things like unemployment benefits decrease, leading to a lower budget deficit.

Question 8

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 9

In every year between 1998 and 2008,the Canadian federal government had a

Accepted Answer

During the years 1998 to 2008, the Canadian federal government consistently reported budget surpluses, meaning that its tax revenues exceeded total government expenditures. This period is notable in Canada's fiscal history for its successful efforts in reducing the national debt through surplus budgets.

Question 10

The diagram below shows two budget deficit functions for a hypothetical economy.  FIGURE 31-2
-Refer to Figure 31-2.Initially,suppose real GDP is $100 million and the budget deficit is $14 million,as shown by point A.Which of the following events could result in a move from point A to point B?

Accepted Answer

Moving from point A to point B would require a decrease in the budget deficit. This can be achieved through the implementation of a contractionary fiscal policy, such as decreasing government spending or increasing taxes. Therefore, option B is the correct choice. Choice A or E would likely increase the budget deficit, while options C and D would not directly impact the budget deficit.

Question 11

Consider the government's 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 are likely to increase due to increased spending on unemployment benefits and other social welfare programs. At the same time, tax revenues are likely to decline due to lower income and sales tax receipts as economic activity slows down. This combination of increased expenditures and decreased revenues will lead to a higher budget deficit.

Question 12

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 13

Consider the government's 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, economic activity increases, leading to higher income and profits. This typically results in higher tax revenues for the government, which can decrease the budget deficit or increase the surplus, assuming government spending does not increase proportionately.

Question 14

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

Accepted Answer

The correct answer is D) 1998. The federal government of Canada had a budget surplus each year from 1998 until 2008.

Question 15

Consider the government's 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 typically leads to an increase in net tax revenues because more economic activity generates more taxable income. This increase in net tax revenues tends to lower the budget deficit, as there is more revenue available to cover government spending. Therefore, choice B is the best answer, as it correctly identifies that an increase in GDP will raise net tax revenues and lower the budget deficit when the fiscal policy is unchanged.

Question 16

Consider the government's 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

When real GDP increases while fiscal policy remains constant, tax revenue will increase while government spending remains the same, which leads to a lower budget deficit.

Question 17

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

If the government implements an expansionary fiscal policy by increasing its purchases of goods and services, it will increase its spending and hence, will increase the budget deficit. This will lead to a shift up in the budget deficit function. Therefore, the correct choice is D.

Question 18

The diagram below shows the budget deficit function for a government in a hypothetical economy.  FIGURE 31-1
-Refer to Figure 31-1.For the given budget deficit function in the diagram,the government will have a budget surplus if 1)real GDP increases beyond $X million
2)the interest rate on government debt decreases
3)government expenditure decreases

Accepted Answer

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

Question 19

The diagram below shows two budget deficit functions for a hypothetical economy.  FIGURE 31-2
-Refer to Figure 31-2.Initially,suppose the economy is at point A on budget deficit function  .Real GDP (Y)is $100 million.If the level of potential output (Y*)were $300 million,the structural budget deficit would be

Accepted Answer

The structural budget deficit is determined by the vertical distance between the horizontal axis and the budget deficit function at potential output (Y*). In this case, potential output is $300 million, and the vertical distance between the horizontal axis and the budget deficit function 11ea71cb_f3f7_6d1e_91e5_a1d60d5b0245_TB5441_11 is $14 million (as shown in the diagram). Therefore, the structural budget deficit is $14 million.

Question 20

Consider the government's 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, including its spending and taxation decisions, directly determine the budget deficit. Changes in these policies can shift the budget deficit function up or down, influencing the amount of government borrowing needed to finance the deficit. Nominal GDP, interest rates, government securities transactions, and the stock of government debt can all indirectly affect the budget deficit, but they are not the primary determinants of its level.

Quiz 31: Government Debt and Deficits

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

The diagram below shows two budget deficit functions for a hypothetical economy. FIGURE 31-2 -Refer to Figure 31-2.Initially,suppose real GDP is $100 million and the budget deficit is $14 million,as shown by point A.Which of the following events could result in a move from point A to point C?

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

The diagram below shows two budget deficit functions for a hypothetical economy. FIGURE 31-2 -Refer to Figure 31-2.Initially,suppose the economy is at point A.If the government were to then implement a fiscal expansion,the structural budget deficit would be

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

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

In every year between 1998 and 2008,the Canadian federal government had a

The diagram below shows two budget deficit functions for a hypothetical economy. FIGURE 31-2 -Refer to Figure 31-2.Initially,suppose real GDP is $100 million and the budget deficit is $14 million,as shown by point A.Which of the following events could result in a move from point A to point B?

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

Consider the government's 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

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

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

Consider the government's 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.

Consider the government's 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