Question 1

The objectives of the GST in Australia were to:

Accepted Answer

The primary objective of the Goods and Services Tax (GST) in Australia was to diversify the government's revenue sources, thereby reducing reliance on income taxation. This broad-based tax on most goods and services aimed to create a more balanced and sustainable fiscal strategy.

Question 2

The introduction of the GST in Australia is an example of:

Accepted Answer

The answer of The introduction of the GST in Australia...

Question 3

If the MPC is 0.8, the spending multiplier is 4.

Accepted Answer

The spending multiplier is calculated as 1/(1-MPC). If MPC is 0.8, the multiplier is 1/(1-0.8) = 5.

Question 4

The objectives of the GST in Australia were to:

Accepted Answer

The main objective of the GST in Australia was to encourage increased rates of community saving by taxing income when it was spent rather than when it was earned. This is achieved by making individuals think twice before spending their income and thus save more.

Question 5

Countercyclical fiscal policy advocates running a balanced budget over the course of the business cycle.

Accepted Answer

Countercyclical fiscal policy aims to stabilize the economy by running a budget surplus during economic expansions and a budget deficit during economic contractions. This helps to smooth out economic fluctuations and promote economic growth.

Question 6

The objectives of the GST in Australia were to:

Accepted Answer

The GST was introduced in Australia to reduce reliance on income taxation in government revenue raising. It was meant to broaden the tax base and provide a more stable source of revenue for the government. The other options (A, B, D) are not objectives of the GST.

Question 7

The tax multiplier is greater than the spending multiplier regardless of the value of the marginal propensity to save (MPS).

Accepted Answer

The tax multiplier is actually smaller than the spending multiplier, as it depends on the marginal propensity to consume (MPC) and the relative size of the tax cut to the economy. The larger the MPC and tax cut relative to the economy, the smaller the tax multiplier. In contrast, the spending multiplier depends solely on the MPC and the size of the government spending increase.

Question 8

The domestic deficit is the:

Accepted Answer

The domestic deficit is calculated by subtracting domestic government expenditure from domestically derived revenue. Therefore, the correct choice is D. Choices A and B add government expenditure to domestically derived revenue, which is not correct. Choice C subtracts total government expenditure from domestically derived revenue, which is too broad and not specific to domestic government expenditure.

Question 9

Automatic stabilisers are government programs that tend to push the federal budget toward deficit as the real GDP rises and toward surplus as the real GDP falls.

Accepted Answer

Automatic stabilizers work by increasing government spending or decreasing taxes as real GDP falls, and decreasing government spending or increasing taxes as real GDP rises, thus helping to stabilize economic fluctuations without new legislative action.

Question 10

An expansionary fiscal policy is likely to be more effective if:

Accepted Answer

An expansionary fiscal policy is designed to stimulate economic growth and increase aggregate demand. If the government increases its spending on locally produced goods and services, it would create a multiplier effect, where every dollar spent by the government would lead to more than one dollar increase in GDP. Additionally, this would create job opportunities and increase the income of producers, which would further increase consumer spending, leading to a higher level of aggregate demand. On the other hand, if the government spends on imports, it would not have the same multiplier effect, as the money would flow out of the country, ultimately leading to a decrease in the amount of spending that is used for domestic production. If the economy is already at full employment, an expansionary fiscal policy is not needed as it could lead to inflation. Lastly, increasing income tax rates would have a contractionary effect on the economy, leading to a decrease in aggregate demand.

Question 11

Economists sometimes look at the cyclically adjusted budget balance in order to determine:

Accepted Answer

The cyclically adjusted budget balance, also known as the structural budget balance, is a measure of the fiscal stance after adjusting for automatic stabilizers. Automatic stabilizers refer to the changes in tax revenue and government spending that naturally occur during economic cycles, such as higher tax revenue and lower spending during expansions and vice versa during contractions. By adjusting for these changes, the cyclically adjusted budget balance provides a clearer picture of a government's underlying fiscal policies and their impact on the economy.

Question 12

If the government is currently running an overall budget deficit, when inflation is rising and unemployment is low, then the cyclically adjusted budget deficit should indicate:

Accepted Answer

The cyclically adjusted budget deficit removes the effects of the economic cycle on the budget to show the underlying fiscal stance. If the government is running a budget deficit during a period of rising inflation and low unemployment, it suggests an expansionary fiscal stance, as the government is spending more than it is earning in a time of economic strength, thereby adding to demand.

Question 13

The presence of automatic stabilisers means an increase in the budget deficit will be automatically experienced during an economic expansion whereas a budget surplus will be automatically experienced during a recession.

Accepted Answer

Automatic stabilizers work by increasing government spending or decreasing tax revenues during a recession, which can lead to a higher budget deficit, and by decreasing government spending or increasing tax revenues during an economic expansion, which can lead to a lower budget deficit or a surplus.

Question 14

According to Keynesian economics, fiscal policy should be coordinated to create a deficit during economic contractions and a surplus during economic expansions.

Accepted Answer

Keynesian economics advocates for the use of fiscal policy to stabilize the economy. During times of recession or economic contraction, Keynesian economists recommend increasing government spending or cutting taxes to stimulate demand and create jobs, even if it means running a budget deficit. Conversely, during times of inflation or economic expansion, fiscal policy should be tightened by reducing government spending or raising taxes to cool down the economy and prevent overheating.

Question 15

A $10 million increase in government spending has a different economic impact to a $10 million tax cut.

Accepted Answer

A $10 million increase in government spending would directly inject $10 million into the economy, while a $10 million tax cut would depend on how individuals and businesses choose to spend or save the extra money. Some may use it to boost consumption and investment, while others may save it or use it to reduce debt. Therefore, the economic impact of the two policies may differ.

Question 16

The objectives of the GST in Australia were to:

Accepted Answer

The objective of GST in Australia was to broaden the range of goods and services attracting tax, which means more items will be taxed under GST. The other options such as reducing the range of goods and services attracting tax and discouraging increased rates of community saving are not the objectives of GST. Also, the objective wasn't to increase the reliance on income taxation in government revenue raising.

Question 17

The following is important when interpreting the federal budget:

Accepted Answer

The actual pattern of expenditure and revenue in addition to the deficit/surplus figure is important when interpreting the federal budget as it provides a more comprehensive understanding of where government spending is allocated and where revenues are generated. Focusing solely on the deficit/surplus figure can lead to a partial and incomplete picture of the overall budget. The other options, such as wages in a specific industry and the introduction of competition in markets, may be relevant to certain aspects of the economy but do not necessarily provide insight into the federal budget as a whole.

Question 18

The cyclically adjusted budget deficit is the planned deficit for future times.

Accepted Answer

The cyclically adjusted budget deficit is a measure of the government's fiscal balance adjusted for the effects of the economic cycle, not a planned deficit for future times. It aims to show the deficit or surplus in a neutral economic environment.

Question 19

Domestic deficit is the difference between:

Accepted Answer

Domestic deficit refers to the shortfall that occurs when a country's domestically derived revenue is not sufficient to cover its domestic government expenditure. This is a measure of how much the government needs to borrow to cover its expenses if it spends more than it earns from domestic sources.

Question 20

If the government runs a budget deficit by increasing spending on imports, the effectiveness of this policy will be reduced.

Accepted Answer

If the government runs a budget deficit by increasing spending on imports, it means that a significant portion of the money is flowing out of the country to foreign producers. As a result, there won't be as much money circulating within the country to stimulate the economy, and the effectiveness of the policy will be reduced.

Quiz 18: Macroeconomic Policy II: Fiscal Policy

The objectives of the GST in Australia were to:

The introduction of the GST in Australia is an example of:

If the MPC is 0.8, the spending multiplier is 4.

The objectives of the GST in Australia were to:

Countercyclical fiscal policy advocates running a balanced budget over the course of the business cycle.

The objectives of the GST in Australia were to:

The tax multiplier is greater than the spending multiplier regardless of the value of the marginal propensity to save (MPS).

The domestic deficit is the:

Automatic stabilisers are government programs that tend to push the federal budget toward deficit as the real GDP rises and toward surplus as the real GDP falls.

An expansionary fiscal policy is likely to be more effective if:

Economists sometimes look at the cyclically adjusted budget balance in order to determine:

If the government is currently running an overall budget deficit, when inflation is rising and unemployment is low, then the cyclically adjusted budget deficit should indicate:

The presence of automatic stabilisers means an increase in the budget deficit will be automatically experienced during an economic expansion whereas a budget surplus will be automatically experienced during a recession.

According to Keynesian economics, fiscal policy should be coordinated to create a deficit during economic contractions and a surplus during economic expansions.

A $10 million increase in government spending has a different economic impact to a $10 million tax cut.

The objectives of the GST in Australia were to:

The following is important when interpreting the federal budget:

The cyclically adjusted budget deficit is the planned deficit for future times.

Domestic deficit is the difference between:

If the government runs a budget deficit by increasing spending on imports, the effectiveness of this policy will be reduced.