1) If investment decreases by $20 billion and the economy's MPC is .

5, the aggregate demand

curve will shift: 
 

A. leftward by $40 billion at each price level.

B.  rightward by $20 billion at each price level.
C.  rightward by $40 billion at each price level.
D. leftward by $20 billion at each price level.

2) The financing of a government deficit increases interest rates and, as a result, reduces
investment spending. This statement describes: 
 

A. the supply-side effects of fiscal policy.

B.  built-in stability.
C. the crowding-out effect.
D. the net export effect.

3) Which of the following best describes the built-in stabilizers? 

A. The size of the multiplier varies inversely with the level of GDP.
B.  Personal and corporate income tax collections automatically fall and transfers and
subsidies automatically rise as GDP rises.
C.  Personal and corporate income tax collections and transfers and subsidies all
automatically vary inversely with the level of GDP.
D. Personal and corporate income tax collections automatically rise and transfers and
subsidies automatically decline as GDP rises.

4) A tax reduction of a specific amount will be more expansionary the: 

 
A. smaller is the economy's MPC.
B.  larger is the economy's MPC.
C.  smaller is the economy's multiplier.
D. less is the economy's built-in stability.

5) The structural budget deficit or surplus tells us: 

 

A. that in a full-employment economy, the federal budget should be in balance.

B. that tax revenues should vary inversely with GDP.
C.  what the size of the federal budget deficit or surplus would be if the economy was at full
employment.
D. the actual budget deficit or surplus realized in any given year.
 6) If the US is contemplating an additional fiscal stimulus by way of additional government
spending then what is the result likely to be as per the Aggregate Demand and Aggregate
Supply model?

A.A shift in the Aggregate Demand Curve to the right, increased GDP growth and a higher
price level.
B. shift in the Aggregate Demand curve to the left, increased GDP growth with lower price
level.
C. A shift in the Aggregate Demand curve to the right, decreased GDP growth and a higher
price level.
D. A shift in the Aggregate Supply curve to the left.

7) Which of the following statements is correct?

A. A primary surplus will help to reduce the country’s debt so long as it is more than
the difference between the rate of interest and the rate of growth.
B. When the rate of interest is higher than the rate of growth the country’s debt is
likely to decrease given that all other factors remain constant.
C. The country’s debt will remain constant when the primary deficit is zero and the
rate of growth is higher than the rate of interest.
D. All of the above.

8) Which of the following deficits indicate the use of capital receipts for revenue
expenditure?

a) Revenue deficit
b) Fiscal deficit
c) Primary deficit
d) Budgetary deficit

9) Which of the following is a current receipt in the government budget of a country?

a) Sale of assets by the government

b) Interest received on loans given
c) Transfer receipts
d) b and c

10) When the Revenue Deficit of the government rises or if the current expenditure by the
government is more than the current receipts it gets it indicates that:

a) There is a building up of a potential debt trap for the government

b) There is an increased use of capital receipts for revenue expenditure
 c) a and b
d) None of the above

11) In India , Primary deficit relates to:

a) Fiscal deficit + interest payments

b) All liabilities of the government
c) Fiscal deficit – interest payments
d) None of the above

12) The Japanese economy is stuck in a recessionary gap. The proper fiscal policy could
include
a) decrease in taxes.
b) increase in government purchases.
c) increase in transfer payments.
d) All of the above

I13) If the federal government wishes to move the economy out of a recessionary gap, the
appropriate fiscal policy is a

a) increase in taxes.
b) decrease in government purchases.
c) decrease in transfer payments.
d) None of the above is correct.

14) Which of the following is not a method to reduce inflation through fiscal policy?

a) Increasing government spending

b) Reducing transfer payments
c) Raising taxes
d) Decreasing government expenditure

15) Which of the following is not considered as financing the fiscal deficit in India?

a) Market borrowings
b) Government external borrowings
c) Disinvestment of PSUs
d) None of the above

16) Contractionary fiscal policy (reduction in government expenditure or increase in

taxes) may have some undesirable consequences. Among these is

a) Higher unemployment
b) Higher Inflation
c) Lower net exports
d) Higher budget deficits