Assume that the economy is in the midst of a severe recession. Which of the following policies would be appropriate?

Multiple Choice

• a reduction in federal tax rates on personal and corporate income
• a reduction in agricultural subsidies and veterans' benefits
• a postponement of a highway construction program
• a proposal to run a federal surplus
• an increase in the federal Goods and Services Tax (GST)

Fiscal policy refers to the:

Multiple Choice

• changing regulations that govern how businesses operate
• manipulation of government purchases and taxes for the purpose of achieving greater equality in the distribution of income
• manipulation of government purchases and taxes for the purpose of stabilizing real output, employment, and the price level
• altering of the interest rate to change aggregate demand
• fact that equal increases in government purchases and taxation will be contractionary

The public debt:

Multiple Choice

• refers to the collective amount that Canadians owe to foreigners
• refers to the debts of Canadian governments, businesses, and households
• refers to the portion of total Canadian government debt owed to foreigners
• consists of the total debts of Canadian provincial and territorial governments
• consists of the accumulation of all past federal deficits minus any federal surpluses

If government purchases increase by $20 billion and aggregate demand shifts rightward by $30 billion as a result, we can conclude that:

Multiple Choice

• the spending multiplier is 3.00
• unemployment is rising
• the MPC for this economy is 0.33
• the spending multiplier is 2.00
• the MPW for this economy is 0.33

A major advantage of automatic stabilizers is that they:

Multiple Choice

• guarantee that the federal budget will be balanced over the course of the business cycle
• require no legislative action by Parliament to be made effective
• guarantee that the federal budget will be balanced each year
• simultaneously stabilize the economy and tend to reduce the absolute size of the public debt
• automatically produce surpluses during recessions and deficits during inflation