Question 1

The Commonwealth government's expenses are classified into three categories.These are

Accepted Answer

A)  transfers to international governments,debt repayments and government officials' overseas travel expenses.
B)  unemployment benefits,infrastructure investments and debt.
C)  transfer payments,salaries of public servants and debt.
D)  transfer payments,expenditure on goods and services,and debt interest and other payments.
E)  None of the above.F) None of the above
G) B) and C)

Question 2

In May 2015,the credit rating for Commonwealth of Australia bonds was

Accepted Answer

A)  BB+.
B)  AAA.
C)  AA+.
D)  CC+.
E)  A+.F) C) and D)
G) D) and E)

Question 3

A reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP is that

Accepted Answer

A)  government programs are always expansionary.
B)  during a recession,politicians prefer increases in government spending over decreasing taxes.
C)  government programs automatically move real GDP away from potential GDP.
D)  it is difficult to know whether real GDP is above or below potential GDP.
E)  economic forecasts consistently underestimate the impact of fiscal policy.F) B) and E)
G) B) and D)

Question 4

The table above gives a nation's government outlays and tax revenues for 2008 through to 2012.
-Based on the table above,during which years did the country have a budget deficit?

Accepted Answer

A)  2008 and 2009
B)  2012 only
C)  2011 only
D)  2010 and 2012
E)  All except 2011F) A) and E)
G) A) and D)

Question 5

A tax cut that increases the budget deficit results in ________ in the ________ loanable funds.

Accepted Answer

A)  an increase;demand for
B)  a decrease;supply of
C)  no change;either the demand for or the supply of
D)  an increase;supply of
E)  a decrease;demand forF) D) and E)
G) A) and E)

Question 6

The crowding-out effect refers to the ________ from ________ in the government's budget deficit.

Accepted Answer

A)  decrease in investment;an increase
B)  increase in consumption;an increase
C)  decrease in consumption;a decrease
D)  decrease in employment;an increase
E)  increase in investment;an increaseF) B) and E)
G) C) and E)

Question 7

The figure above shows a labour market with an income tax.
-The tax wedge in the figure above is equal to ________ per hour,which creates an after-tax real wage rate of ________ per hour and employment of ________ billion hours per year.

Accepted Answer

A)  $5;$35;200
B)  $10;$35;250
C)  $15;$30;250
D)  $15;$20;200
E)  $10;$35;200F) B) and E)
G) A) and E)

Question 8

An example of automatic fiscal policy is

Accepted Answer

A)  Parliament passing a tax rate reduction package.
B)  the Reserve Bank reducing interest rates as economic growth slows.
C)  the Commonwealth government expanding spending at the Department of Education and Training.
D)  expenditure for unemployment benefits increasing as economic growth slows.
E)  a change in taxes that has no multiplier effect.F) B) and E)
G) B) and D)

Question 9

An income tax hike

Accepted Answer

A)  increases potential GDP.
B)  increases employment.
C)  decreases potential GDP.
D)  Both answers A and B are correct.
E)  Both answers B and C are correct.F) C) and D)
G) A) and E)

Question 10

A credit rating provides information on an investor's level of default risk.The highest rating is

Accepted Answer

A)  AAA.
B)  BB.
C)  AA+.
D)  A+.
E)  AAB.F) A) and D)
G) B) and D)

Question 11

If we compare the United States to France,we see that potential GDP per person in France is ________ that in the United States because the French tax wedge is ________ the U.S.tax wedge.

Accepted Answer

A)  less than;larger than
B)  greater than;larger than
C)  less than;smaller than
D)  the same as;the same as
E)  greater than;smaller thanF) A) and E)
G) D) and E)

Question 12

The magnitude of the government expenditure multiplier is ________ the magnitude of the tax multiplier.

Accepted Answer

A)  not comparable to
B)  equal to
C)  less than
D)  greater than
E)  for expansionary policy greater than and for contractionary policy less thanF) B) and D)
G) C) and D)

Question 13

Automatic stabilisers

Accepted Answer

A)  have no effect on the magnitude of the government expenditure multiplier.
B)  reduce the government expenditure multiplier to zero.
C)  increase the magnitude of the government expenditure multiplier.
D)  decrease the magnitude of the government expenditure multiplier.
E)  increase the magnitude of the tax multiplier.F) A) and D)
G) A) and E)

Question 14

Looking at the supply-side effects on aggregate supply shows that a tax increase on labour income

Accepted Answer

A)  weakens the incentive to work.
B)  decreases potential GDP.
C)  increases potential GDP because people work more to pay the higher taxes.
D)  Both answers A and B are correct.
E)  None of the above is correct.F) A) and E)
G) A) and C)

Question 15

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue,the effect of the increase in government expenditure on aggregate demand is

Accepted Answer

A)  negative,whereas the effect of the tax decrease is positive.
B)  positive,whereas the effect of the tax decrease is negative.
C)  greater than the effect of the tax decrease.
D)  equal to the effect of the tax decrease.
E)  less than the effect of the tax decrease.F) C) and D)
G) All of the above

Question 16

In Australia for the year 2013/14,the Commonwealth government had a ________ so the national debt was ________.

Accepted Answer

A)  budget surplus;increasing
B)  budget deficit;increasing
C)  budget deficit;decreasing
D)  balanced budget;not changing
E)  budget surplus;decreasingF) A) and D)
G) A) and E)

Question 17

When the government's expenditures exceed its revenues,the budget

Accepted Answer

A)  is balanced and the national debt is increasing.
B)  has a deficit and the national debt is decreasing.
C)  has a surplus and the national debt is increasing.
D)  has a deficit and the national debt is increasing.
E)  None of the above because by law the government's expenditures cannot exceed its tax revenue.F) B) and E)
G) A) and B)

Question 18

An increase in income tax shifts the labour supply curve ________,and the ________.

Accepted Answer

A)  leftward;before-tax wage rate does not change
B)  leftward;after-tax wage rate does not change
C)  leftward;after-tax wage rate rises
D)  rightward;before-tax wage rate rises
E)  leftward;after-tax wage rate fallsF) None of the above
G) C) and E)

Question 19

Which of the following is true?

Accepted Answer

A)  Automatic stabilisers help to reduce the impact of a recession.
B)  Discretionary fiscal policy cannot eliminate a recession.
C)  Automatic stabilisers are used to eliminate recessions.
D)  Discretionary fiscal policy can automatically eliminate a recession.
E)  Automatic stabilisers make discretionary policy more effective by increasing the magnitude of the multipliers.F) A) and B)
G) A) and C)

Question 20

Suppose the tax rate on interest income is 25 per cent,the real interest rate is 4 per cent,and the inflation rate is 4 per cent.In this case,the real after-tax interest rate is

Accepted Answer

A)  4.0 per cent.
B)  3.5 per cent.
C)  1.0 per cent.
D)  0.5 per cent.
E)  2.0 per cent.F) None of the above
G) A) and B)

Exam 14: Fiscal Policy

If we compare the United States to France,we see that potential GDP per person in France is ________ that in the United States because the French tax wedge is ________ the U.S.tax wedge.

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Looking at the supply-side effects on aggregate supply shows that a tax increase on labour income

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An increase in income tax shifts the labour supply curve ________,and the ________.

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Suppose the tax rate on interest income is 25 per cent,the real interest rate is 4 per cent,and the inflation rate is 4 per cent.In this case,the real after-tax interest rate is

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When the government's expenditures exceed its revenues,the budget

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Automatic stabilisers

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When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue,the effect of the increase in government expenditure on aggregate demand is

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The magnitude of the government expenditure multiplier is ________ the magnitude of the tax multiplier.

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An income tax hike

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A tax cut that increases the budget deficit results in ________ in the ________ loanable funds.

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Which of the following is true?

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An example of automatic fiscal policy is

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In Australia for the year 2013/14,the Commonwealth government had a ________ so the national debt was ________.

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A credit rating provides information on an investor's level of default risk.The highest rating is

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The crowding-out effect refers to the ________ from ________ in the government's budget deficit.

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The Commonwealth government's expenses are classified into three categories.These are

Correct AnswerverifiedShow Answer

A reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP is that

Correct AnswerverifiedShow Answer

The table above gives a nation's government outlays and tax revenues for 2008 through to 2012. -Based on the table above,during which years did the country have a budget deficit?

Correct AnswerverifiedShow Answer

In May 2015,the credit rating for Commonwealth of Australia bonds was

Correct AnswerverifiedShow Answer

The figure above shows a labour market with an income tax. -The tax wedge in the figure above is equal to ________ per hour,which creates an after-tax real wage rate of ________ per hour and employment of ________ billion hours per year.

Correct AnswerverifiedShow Answer

If we compare the United States to France,we see that potential GDP per person in France is that in the United States because the French tax wedge is the U.S.tax wedge.

Correct Answer
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An increase in income tax shifts the labour supply curve ,and the .

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A tax cut that increases the budget deficit results in in the loanable funds.

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In Australia for the year 2013/14,the Commonwealth government had a so the national debt was .

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The crowding-out effect refers to the from in the government's budget deficit.

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The figure above shows a labour market with an income tax. -The tax wedge in the figure above is equal to per hour,which creates an after-tax real wage rate of per hour and employment of billion hours per year.

Correct Answer
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