Question 1

By the time you're likely to start thinking about retirement,

Accepted Answer

C

Question 2

In the 2015 federal election campaign the current federal government promised more ________ aimed at increasing real GDP and employment.

Accepted Answer

Discretionary fiscal policy refers to the use of government spending and taxation to stabilize the economy. The government's promise to increase real GDP and employment suggests the use of discretionary fiscal policy, as it can be used to stimulate economic growth and job creation.

Answer: E 
 Expansionary monetary policy refers to the actions taken by a central bank to increase the money supply and lower interest rates in order to stimulate economic growth. While it is not explicitly mentioned in the government's promise, the use of expansionary monetary policy would also be a potential tool for achieving the goal of increasing real GDP and employment.

Question 3

In the 1960s and 1970s, the majority of government spending took place at the ________, and since the 1990s, the majority of government spending has taken place at the ________.

Accepted Answer

In the 1960s and 1970s, there was a greater focus on decentralization, leading to more government spending at the provincial and local levels. However, since the 1990s, there has been a trend towards centralization, resulting in more government spending at the federal level.

Question 4

Three categories of federal government expenditures, in addition to government operations, are

Accepted Answer

Debt charges refer to the interest payments on the national debt, transfers to other levels of government are funds transferred from the federal government to provincial and territorial governments, and transfer payments are payments made by the government to individuals or groups for various purposes such as social programs, retirement benefits, and employment benefits. These three categories together make up a significant portion of federal government expenditures. The other options listed do not accurately categorize federal government expenditures.

Question 5

Automatic stabilizers refer to

Accepted Answer

Automatic stabilizers are government spending and taxes that automatically increase or decrease along with the business cycle. For example, during an economic downturn, unemployment increases, and therefore, more people are eligible for unemployment insurance benefits. As a result, government spending on unemployment benefits automatically increases. Additionally, during an economic upswing, more people are employed and generating income that is taxed, leading to an automatic increase in government tax revenue. Automatic stabilizers work without any specific government action and help stabilize economic activity.

Question 6

Which of the following is not an option for provincial governments facing rising health care costs?

Accepted Answer

Printing more money would lead to inflation and is not a viable option for provincial governments to finance their rising health care costs. B) Raising income and sales taxes - this is a viable option but can be politically unpopular. C) Reducing funding to education and other programs - this is an option, but it is not ideal as it diverts funds from other important areas. D) Reducing the level of health care services provided - this option is also not ideal as it negatively impacts the health care of citizens.

Question 7

Which of the following is an objective of fiscal policy?

Accepted Answer

Fiscal policy is concerned with government spending and taxation in order to achieve certain economic objectives. One common objective of fiscal policy is to promote high rates of economic growth, which can lead to increased employment, investment, and overall prosperity.

Question 8

Federal government purchases, as a percentage of GDP,

Accepted Answer

Federal government purchases as a percentage of GDP rose from the early 1960s until the mid-1990s, and then fell.

Question 9

Fiscal policy refers to changes in

Accepted Answer

Fiscal policy specifically refers to changes in government spending and taxation aimed at achieving macroeconomic goals such as stabilizing the economy and controlling inflation. Answers A, C, D, and E refer to other policy tools and objectives.

Question 10

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

Accepted Answer

A decrease in the marginal income tax rate will increase the disposable income of individuals, which will lead to an increase in consumer spending and aggregate demand.

Question 11

Government spending on health care has been

Accepted Answer

Government spending on health care has been consistently rising as a share of government spending due to factors such as population growth, aging, and the increasing cost of health care services and technology.

Question 12

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of

Accepted Answer

The increase in tax revenue during an expansion and decrease during a recession is an example of automatic stabilizers, which are economic policies that are built into the system and do not require active intervention from the government. In this case, the progressive income tax system serves as an automatic stabilizer.

Question 13

Which of the following would be classified as fiscal policy?

Accepted Answer

Fiscal policy refers to the use of government spending and taxation to influence the economy. Option D refers to the federal government cutting taxes as a way to stimulate the economy, which is an example of fiscal policy. The other options refer to monetary policy (B) or specific provincial policies (A and E) that do not involve a broad approach to government spending and taxation. Option C also involves tax cuts, but at a provincial level, which is not typically classified as fiscal policy.

Question 14

The income tax system serves as an automatic stabilizer over the course of the business cycle.

Accepted Answer

During economic downturns, individual and corporate incomes typically decrease, leading to lower tax revenues for the government. However, the income tax system is designed to automatically adjust to these changes through progressive taxation, where higher earners are taxed at higher rates. As a result, during economic downturns, the tax burden shifts more towards higher earners, providing a boost to government revenues and stabilizing the economy. Conversely, during periods of economic growth, tax revenues increase due to rising incomes, leading to a reduction in the tax burden on lower earners and further stimulating economic growth.

Question 15

Federal government expenditures, as a percentage of GDP,

Accepted Answer

Federal government expenditures rose steadily from 1950 to 1991, as a percentage of GDP. From 1992 to 2001, expenditures fell slightly. However, since 2001, federal government expenditures have been on the rise, as a percentage of GDP.

Question 16

If Parliament passed a one-time tax cut in order to stimulate the economy in 2015, and tax rate levels returned to their pre-2015 level in 2016, how should this tax cut affect the economy?

Accepted Answer

The answer of If Parliament passed a one-time tax cut...

Question 17

The increase in government spending on Employment Insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

Accepted Answer

The situation described in the question is an example of automatic stabilizers. Automatic stabilizers are economic policies that automatically react to changes in the economy without discretionary action by policymakers. In this case, as the economy enters a recession, more workers are laid off, and government spending on Employment Insurance payments to these workers automatically increases. This increased government spending helps to stabilize the economy by providing income support to workers who have lost their jobs. As the economy enters an expansion, fewer workers are laid off, and government spending on unemployment insurance payments automatically decreases, helping to stabilize the economy by reducing government spending.

Question 18

The largest source of federal government revenue in 2015 was

Accepted Answer

According to the Government of Canada's Fiscal Reference Tables 2015-2016, personal income taxes accounted for 49.7% of federal government revenue in 2015, making it the largest source of revenue. Corporate income taxes accounted for 14.9%, followed by the GST at 12.2%, payroll taxes for Employment Insurance at 6.4%, and profits of crown corporations at 2.9%.

Question 19

Government spending on health care will likely

Accepted Answer

As the population ages, there will likely be an increased demand for healthcare services. This is especially true for older adults, who tend to have more health issues that require medical attention. Therefore, government spending on healthcare is likely to increase as the population ages.

Question 20

Which of the following would not be considered an automatic stabilizer?

Accepted Answer

Automatic stabilizers are government programs or policies that automatically counterbalance the fluctuations in economic activity, without the need for specific legislative action. Option A is not an automatic stabilizer since legislation would need to be passed to increase funding for job retraining during a recession, which is not automatically triggered by economic fluctuations. The other options listed are examples of automatic stabilizers.

Quiz 12: Fiscal Policy