Chapter 13 Fiscal Policy, Deficits, Surpluses, and Debt QUESTION AND ANSWERS|ALL YOU NEED DURING REVISION

Chapter 13 - Fiscal Policy, Deficits, Surpluses, and Debt

Chapter 13
Fiscal Policy, Deficits, Surpluses, and Debt




True / False Questions


1. If the MPC in the economy is .75, government could shift the aggregate demand curve
rightward by $30 billion by cutting taxes by $10 billion.
TRUE



Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 13-01 Identify and explain the purposes; tools; and limitations of fiscal policy.
Topic: 13-02 Expansionary Fiscal Policy



2. An increase in taxes would be an expansionary fiscal policy.
FALSE



Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 13-01 Identify and explain the purposes; tools; and limitations of fiscal policy.
Topic: 13-02 Expansionary Fiscal Policy



3. A decrease in government spending and taxes would be an example of fiscal policies that
reinforce each other.
FALSE



Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 13-01 Identify and explain the purposes; tools; and limitations of fiscal policy.
Topic: 13-02 Expansionary Fiscal Policy




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,Chapter 13 - Fiscal Policy, Deficits, Surpluses, and Debt



4. A contractionary fiscal policy shifts the aggregate demand curve leftward and may or may
not reduce real GDP.
TRUE



Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 13-01 Identify and explain the purposes; tools; and limitations of fiscal policy.
Topic: 13-03 Increased Government Spending



5. A decrease in government spending is one of the options that can be used to pursue a
contractionary fiscal policy.
TRUE



Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 13-01 Identify and explain the purposes; tools; and limitations of fiscal policy.
Topic: 13-03 Increased Government Spending



6. An increase in taxes and a decrease in government spending would be characteristic of a
contractionary fiscal policy.
TRUE



Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 13-01 Identify and explain the purposes; tools; and limitations of fiscal policy.
Topic: 13-03 Increased Government Spending



7. An inflationary gap can be restrained by increasing government spending and reducing
taxes.
FALSE



Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 13-01 Identify and explain the purposes; tools; and limitations of fiscal policy.
Topic: 13-03 Increased Government Spending




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,Chapter 13 - Fiscal Policy, Deficits, Surpluses, and Debt



8. Built-in stability refers to the fact that net tax revenues vary inversely with the level of
GDP.
FALSE



Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 13-02 Explain the role of built-in stabilizers in moderating business cycles.
Topic: 13-05 Combined Government Spending Increases and Tax Reductions



9. Automatic stabilizers will reduce tax revenues during recessions and increase tax revenues
during periods of strong economic growth.
TRUE



Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 13-02 Explain the role of built-in stabilizers in moderating business cycles.
Topic: 13-05 Combined Government Spending Increases and Tax Reductions



10. Built-in stability is synonymous with discretionary fiscal policy.
FALSE



Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 13-02 Explain the role of built-in stabilizers in moderating business cycles.
Topic: 13-05 Combined Government Spending Increases and Tax Reductions



11. The greater the progressiveness of the tax system, the less is the built-in stability of the
economy.
FALSE



Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 13-02 Explain the role of built-in stabilizers in moderating business cycles.
Topic: 13-06 Contractionary Fiscal Policy




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, Chapter 13 - Fiscal Policy, Deficits, Surpluses, and Debt



12. If taxation becomes more progressive, the built-in stability in the economy will increase.
TRUE



Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 13-02 Explain the role of built-in stabilizers in moderating business cycles.
Topic: 13-06 Contractionary Fiscal Policy



13. Tax revenues automatically increase during economic expansions and decrease during
recessions.
TRUE



Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 13-02 Explain the role of built-in stabilizers in moderating business cycles.
Topic: 13-06 Contractionary Fiscal Policy



14. The actual budget may be in deficit while the full-employment budget is in surplus.
TRUE



Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 13-03 Describe how the cyclically adjusted budget reveals the status of Canadian fiscal policy.
Topic: 13-07 Decreased Government Spending



15. An increase in the cyclical deficits will automatically increase the full-employment budget
deficit.
FALSE



Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 13-03 Describe how the cyclically adjusted budget reveals the status of Canadian fiscal policy.
Topic: 13-08 Tax Increases




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