Question 1

The total spending by government during a period of time includes

Accepted Answer

Total government spending includes government purchases of goods and services (such as military equipment or infrastructure projects), transfer payments (such as Social Security or welfare payments), and interest payments on government debt. Therefore, all of the above options are correct.

Question 2

The deficit is

Accepted Answer

The deficit is defined as the amount by which government spending (including purchases, transfers, and net interest payments) exceeds its tax revenues.

Question 3

Since the 1950s, transfer payments' share of GDP has

Accepted Answer

Transfer payments have steadily increased as a share of GDP since the 1950s. This trend can be attributed to the expansion of social welfare programs such as Social Security, Medicare, and Medicaid.

Question 4

The largest source of tax receipts for the government is

Accepted Answer

The answer of The largest source of tax receipts for...

Question 5

The primary deficit is

Accepted Answer

The primary deficit is the amount by which government purchases and transfers exceed tax revenues. It specifically excludes net interest payments.

Question 6

Since the 1950s, the share of GDP devoted to government purchases has

Accepted Answer

While there have been fluctuations over time, the overall trend since the 1950s has been for the share of GDP devoted to government purchases to remain fairly steady.

Question 7

The type of tax receipts that has shown the slowest growth since World War II has been

Accepted Answer

The answer of The type of tax receipts that has...

Question 8

The primary surplus is equal to

Accepted Answer

The answer of The primary surplus is equal to
...

Question 9

The type of tax receipts that has shown the largest growth since the end of World War II has been

Accepted Answer

The answer of The type of tax receipts that has...

Question 10

Assume the marginal tax rate for income above $25000 has risen to 30 percent. If the tax rate for the income less than $25000 is 10 percent, how much tax a person with an income of $40,000 will pay?

Accepted Answer

For the income up to $25,000, the tax rate is 10 percent. So, the tax on the first $25,000 is:
$25,000 x 0.1 = $2,500
For the income above $25,000 and up to $40,000, the tax rate is 30 percent. So, the tax on the next $15,000 is:
$15,000 x 0.3 = $4,500
The total tax paid on an income of $40,000 is:
$2,500 + $4,500 = $7,000

Question 11

Assume the marginal tax rate for income above $25000 has risen to 30 percent. If the tax rate for the income less than $25000 is 10 percent, what is the average tax rate for a person with an income of $40,000?

Accepted Answer

To calculate the average tax rate, we first need to find the amount of tax paid for each bracket of income.
For the first $25,000 of income, the tax rate is 10%, so the tax paid is:
$25,000 x 0.10 = $2,500

For the remaining $15,000 of income, the tax rate is 30%, so the tax paid is:
$15,000 x 0.30 = $4,500

The total tax paid is:
$2,500 + $4,500 = $7,000

The average tax rate is the total tax paid divided by the total income:
$7,000 ÷ $40,000 = 0.175 = 17.5%

Therefore, the correct answer is C.

Question 12

What portion of government purchases of goods and services is carried out by provincial and local governments?

Accepted Answer

According to the latest available data from Statistics Canada (2018), provincial and local governments in Canada accounted for approximately two-thirds (66.8%) of all government spending on goods and services, while the federal government accounted for the remaining one-third (33.2%). Therefore, option C is the correct answer.

Question 13

Interest payments by the government as a share of GNP have

Accepted Answer

The interest payments by the government as a share of GNP increased sharply in the early 1930s during the Great Depression, in the 1940s during World War II, and in the 1980s-1990s due to high inflation and rising nominal interest rates. However, in general, they have remained fairly steady.

Question 14

According to Keynesian economists, the primary problem with using fiscal policy as a stabilization tool is that

Accepted Answer

Keynesian economists argue that fiscal policy can be an effective tool for stabilizing the economy by increasing government spending and/or decreasing taxes during a recession, which can boost aggregate demand and stimulate economic growth. However, the primary problem with using fiscal policy is its inflexibility, particularly with regard to government spending. A large portion of government spending is planned years in advance (such as defense spending and entitlement programs), and cannot easily be changed in response to short-term economic conditions. This can limit the effectiveness of fiscal policy as a stabilization tool.

Question 15

The political process by which fiscal policy is made

Accepted Answer

The political process by which fiscal policy is made is slow, and it often results in a long time lag for fiscal policy. This is because there are a number of steps involved in the process, such as drafting and passing legislation, and there is often debate and negotiation between different branches of government and political parties. As a result, it can take a significant amount of time for fiscal policy changes to be implemented, which can limit the effectiveness of this tool for stabilizing the economy.

Question 16

Which of the following is not included in the government transfer payments?

Accepted Answer

Intergovernmental payments are transfers between different levels of government and are not considered transfer payments to individuals or entities outside the government.

Question 17

Which of the following would not act as an automatic stabilizer?

Accepted Answer

Government purchases are typically discretionary fiscal policy measures, not automatic stabilizers, as they require deliberate action by the government rather than automatically adjusting with the economic cycle.

Question 18

The main sources of the Canadian government income are

Accepted Answer

The Canadian government's main sources of income are direct and indirect taxes (such as income tax, sales tax, and excise tax) and investment income (such as profits from crown corporations and revenue from natural resources). Foreign investment and other sources of income are not significant enough to be considered main sources.

Question 19

Classical economists think that lump-sum tax changes

Accepted Answer

Classical economists believe in Ricardian equivalence, which states that changes in lump-sum taxes should have no effect on aggregate demand because taxpayers will anticipate the future tax burden and adjust their current spending accordingly. Therefore, option D is correct. Options A, B, and C are incorrect.

Question 20

Provincial and local governments rely on ________ as their primary source of tax receipts.

Accepted Answer

Provincial and local governments rely on indirect taxes such as sales tax and property tax as their primary source of tax receipts. Direct taxes from persons and enterprises, as well as investment income, may also contribute to their revenue, but indirect taxes are the most significant source.

Quiz 15: Government Spending and Its Financing