Fiscal Policy

The government can never have a negative debt position

• True

• False

The Ricardian equivalence is based on the basic assumption that consumers are myopic or short sighted.

• True

• False

If ratio of primary deficit to GDP is zero , then any debt ratio is sustainable as long as growth rate is greater than the real interest rate.

• True

• False

Taxing & spending to help the economy grow is referred to as

• expansionary policy
• monetary policy
• contractionary policy
• budget deficit

During a contraction / recession, the Federal Government should use

• an expansionary fiscal policy

• a contractionary fiscal policy

An example of expansionary fiscal policy would be

• cutting taxes.
• cutting government spending.
• cutting production of consumer goods.
• cutting prices of consumer goods.

Fiscal policy is used for

• Controlling money supply

• Influencing macroeconomic conditions

For an equal reduction in current tax in debt elimination and debt stabilization , the increase in future tax is higher in debt elimination than debt stabilization.

• True

• False

Which is a key characteristic of an automatic stabilizer?

• They take time to be implemented

• They occur automatically based on the phase of the business cycle we are in.

• They must be paid back to the government

• Only corporations have access to automatic stabilizers

Consider an economy where budget deficit is 3 % of GDP. Debt to GDP ratio is 100%. Nominal interest rate is 10% and the inflation rate is 7%.                  

• 6%

• 7%

• 3%

• 10%