Question : 101) Financing a budget deficit by increasing the money supply : 1384511

101) Financing a budget deficit by increasing the money supply will

A) allow more flexibility in the design of monetary policy.

B) increase investment over time.

C) create greater inflationary pressure.

D) have no short-run monetary effects on the economy.

E) reduce the burden of government debt.

102) In the long run, the government budget will add to sustained inflation if

A) they require decreases in the money supply.

B) continual deficits are financed by the continual creation of new money.

C) deficits are always accompanied by decreases in the money supply.

D) government borrowing lowers interest rates.

E) the government finances the deficit by borrowing from the private sector.

103) In general, the government will have ________ flexibility in implementing counter-cyclical fiscal policy when the outstanding stock of government debt is ________ relative to the size of GDP.

A) more; large

B) more; small

C) total; large

D) less; small

E) less; insignificant

104) Consider the government’s debt-to-GDP ratio. A significant reason for a government to maintain a low debt-to-GDP ratio is so that

A) the real interest rate remains high, which leads to increased investment.

B) the Canadian dollar will appreciate and net exports will increase.

C) the government has the flexibility to use expansionary fiscal policy if the economy enters a recession.

D) the Bank of Canada has the flexibility to use contractionary policy.

E) there is no “crowding in” of investment or net exports.

105) In Canada, specific legislation requiring the federal government to run balanced budgets or budget surpluses on an annual basis

A) is contained in the Sustainability Fund Act.

B) is contained in the preamble to The Charter of Rights and Freedoms.

C) is a non-binding guideline in Bill C-101.

D) is a binding restriction on fiscal policy set out in the Fiscal Responsibility Act.

E) does not exist.

106) An annually balanced government budget is a

A) destabilizer because fiscal policy is then pro-cyclical.

B) destabilizer because the fiscal year is longer than the business cycle.

C) stabilizer because it smooths out the peaks and troughs of the business cycle.

D) stabilizer because it allows greater flexibility in the design of fiscal policy.

E) stabilizer in most circumstances.

107) The policy objective of an annually balanced government budget

A) is feasible and would be stabilizing.

B) is feasible but would be destabilizing.

C) would be stabilizing, but is difficult to achieve.

D) is difficult to achieve and would be destabilizing.

E) would eliminate the swings in real GDP.

108) An annually balanced government budget is a difficult policy goal to achieve because

A) a significant portion of the government’s budget is beyond the short-term discretion of the federal government.

B) government has little control over interest-rate charges on its debt during a fiscal year.

C) tax revenues automatically rise during economic booms and fall during recessions.

D) transfer payments rise during recessions and fall during economic booms.

E) —all of the above are reasons why a balanced budget is difficult to achieve.

109) If the Canadian federal government adopted a formal balanced budget rule, during times that GDP was rising it would have to

A) increase tax rates and/or increase spending which would destabilize the economy.

B) decrease spending and transfer payments while holding tax rates constant.

C) decrease tax rates and/or increase spending which would destabilize the economy.

D) decrease interest payments on the debt.

E) decrease tax rates and/or decrease spending which would destabilize the economy.

110) If the Canadian federal government adopted a formal balanced budget rule, during times that GDP was falling it would have to

A) increase tax rates and/or increase spending which would destabilize the economy.

B) decrease spending and transfer payments while holding tax rates constant.

C) decrease tax rates and/or increase spending which would destabilize the economy.

D) decrease interest payments on the debt.

E) increase tax rates and/or decrease spending which would destabilize the economy.