MEcon Master of Economics Public Finance and Fiscal Policy

Question 1

Automatic stabilizers in fiscal policy are government programs that:

Accepted Answer

Automatically increase spending or cut taxes during recessions without new legislation

Answer

Require new legislation to activate

Answer

Stabilize the money supply

Answer

Prevent the budget deficit from changing over the cycle

Question 2

The Ricardian Equivalence proposition suggests that deficit financing of government spending:

Accepted Answer

Has no effect on aggregate demand because households save the tax cut to pay future taxes

Answer

Always stimulates aggregate demand

Answer

Leads to higher interest rates always

Answer

Reduces national savings permanently

Question 3

A progressive income tax system is one in which the marginal tax rate:

Accepted Answer

Rises as income rises

Answer

Is the same for all income levels

Answer

Falls as income rises

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Equals the average tax rate at all levels

Question 4

The concept of 'fiscal multiplier' refers to the ratio of:

Accepted Answer

Change in GDP to the initial change in government expenditure

Answer

Tax revenue change to spending change

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Change in interest rates to change in taxes

Answer

Budget deficit to GDP

Question 5

A Pigouvian tax is designed to correct for:

Accepted Answer

Negative externalities by making the polluter internalize social costs

Answer

Income inequality

Answer

Budget deficits by raising revenue

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Monopoly power in regulated industries

Question 6

Public goods are characterized by:

Accepted Answer

Non-rivalry and non-excludability

Answer

Rivalry and excludability

Answer

High marginal production costs

Answer

Private provision through markets