Question 21(1 point)

Suppose real GDP is $1.7 trillion, potential real GDP is $1.8 trillion, and the federal government plans to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price level, the federal government would need to increase government purchases by

Question 21 options:

more than $100 billion.

less than $100 billion.

None of the above is correct. The federal government must decrease government purchases in this case.

$100 billion.

Question 25(1 point)

The purchase of government bonds by the Bank of Canada

Question 25 options:

decreases the quantity of money.

decreases the supply of loanable funds

decreases aggregate demand.

increases the quantity of money.

Question 27(2 points)

If the tax multiplier is -1.5 and a $20 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.)

Question 27 options:

a $30 billion decrease in GDP

a $13.33 billion decrease in GDP

a $30 billion increase in GDP

a $300 billion increase in GDP

Question 28(1 point)

There is a federal budget deficit when

Question 28 options:

the government spends less that it collects in taxes.

taxes are too high.

the government spends more that it collects in taxes.

the government spends the same amount it collects in taxes.