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Question 01

Which of the following is generally inconsistent with the economic functions of a government in a market economy?

a) Provision of public goods and services

b) Regulate private economic activity

c) Income redistribution

d) Stabilization of aggregate economic activity

Question 02

An example of a good produced under increasing returns is:

a) Defence.

b) Law and Order.

c) Roads.

d) Human capital.

Question 03

The typical countercyclical pattern of government deficits can be explained by voters' preferences to have (A) _________ public consumption and by governments taxing (B) _________ in bad years than in good years.

a) (A) smooth; (B) less

b) (A) smooth; (B) more

c) (A) countercyclical; (B) less

d) (A) countercyclical; (B) more

Question 04

In the figure above we see the relationship between the government budget surplus and the output gap for two different fiscal policies, FP and FP´. The shift from FP to FP´ could be explained by:

a) a recession

b) a government spending cut.

c) a tax cut.

d) an increase in the income tax rate.

Question 05

B is the level of public debt
M0 is the monetary base
P is the price level
G is government spending on goods and services
T is government taxes net of transfers
r is the interest rate

For the government budget/debt equation, decide whether subtraction or addition signs are appropriate in the spaces indicated.

a) (i) "-" ; (ii) "-"

b) (i) "-" ; (ii) "+"

c) (i) "+" ; (ii) "-"

d) (i) "+" ; (ii) "+"

Question 06

Seigniorage in real terms is equal to:

Question 07

It becomes increasingly difficult for a government to get away with an inflation tax because purchasers of government bonds will:

a) demand higher nominal interest rates.

b) refuse all but shortest term bonds.

c) will demand price level indexed bonds.

d) all of the above.

Question 08

Sovereign nations are sometimes willing to default on the external debt because honouring the debt could demand a very long sequence of (A) _________ but defaulting on externally held debt would mean (B) _________ until international lenders are willing to trust us again.

a) (A) government budget surpluses; (B) government budget balances

b) (A) government budget surpluses; (B) PCA balances

c) (A) PCA surpluses; (B) government budget balances

d) (A) PCA surpluses; (B) PCA balances

Oxford University Press, Online Resource Centre, Chapter 15.

Chapter 15

Instructions