Economics 12
Economic Policy Making – Fiscal Policy
Name: _________________________
Date: _________________________
Multiple Choice [15]
_____ 1.
What is fiscal policy?
a) It is the central bank's policy on interest rates.
b) It is government's policy on spending.
c) It is government's policy on taxation.
d) It is government's policy on both spending and taxation.
_____ 2.
Which of the following will close an inflationary gap?
a) An increase in exports.
b) An increase in government spending.
c) A decrease in government spending.
d) A decrease in taxes.
_____ 3.
To what group is the largest portion of the national debt owed?
a) Foreign individuals, banks, and businesses.
b) The Canadian public (individuals, businesses, and banks in Canada).
c) The Bank of Canada.
d) The Government of Canada.
_____ 4.
What is net tax revenue?
a) It is the total of all taxes collected by government.
b) It is the total of all taxes collected by government plus transfer payments.
c) It is the total of all taxes collected by government less transfer payments.
d) It is-the total of all taxes collected by government less spending by government on goods and
services.
_____ 5.
When does a government budget surplus exist?
a) When net tax revenue exceeds government spending on goods and services.
b) When net tax revenue is less than government spending of all types.
c) When government spending of all types exceeds net tax revenue.
d) When government spending on goods and services exceeds net tax revenue.
_____ 6.
What can cause an upward (left) shift in the budget line?
a) An increase in GDP.
b) An increase in taxes.
c) An increase in government spending.
d) A decrease in taxes.
_____ 7.
What would cause the aggregate demand curve to shift to the right?
a) Countercyclical fiscal policy used to eliminate a recessionary gap.
b) An increase in taxes.
c) An increase in net tax revenues.
d) A decrease in government spending on goods and services.
Fiscal Policy Quiz
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_____ 8.
What is the effect of a countercyclical fiscal policy?
a) It intensifies changes in GDP caused by the business cycle.
b) It dampens changes in GDP caused by the business cycle.
c) It has no effect on changes in GDP caused by the business cycle.
d) It allows government to balance its budget.
_____ 9.
Which of the following statements about countercyclical fiscal policy is correct?
a) It is appropriate in situations of a recessionary gap but not when an inflationary gap exists.
b) It is appropriate in situations of an inflationary gap but not when a recessionary gap exists.
c) It involves only higher government spending.
d) It involves only higher taxes.
e) It is the use of spending or taxation policies by government to push the economy in a direction
opposite to the way it was moving.
_____ 10. What are automatic stabilizers?
a) Imports and exports that automatically change with the state of the economy so as to stabilize the
economy.
b) Investment spending which automatically changes with the state of the economy so as to stabilize
the economy.
c) Tax provisions and government spending programs that automatically put spending into the
economy in a recessionary period and take it out in a boom period.
d) Consumption spending which automatically changes with the state of the economy so as to
stabilize the economy.
_____ 11. What is a cyclically balanced budget fiscal policy?
a) A policy of balancing the budget each fiscal year.
b) A policy of using the budget to balance the economy each fiscal year.
c) A policy of balancing the budget over the life of the business cycle.
d) A policy of using the budget to balance the economy over the life of the business cycle.