1.Provinces that are required to have annually balanced budgets are likely to A.
ID: 2439131 • Letter: 1
Question
1.Provinces that are required to have annually balanced budgets are likely to
A. experience the same fluctuations in business cycles as those not required to balance their budgets
B. experience less severe business cycles than those not required to balance their budgets
C. experience more severe business cycles than those not required to balance their budgets
2.We would expect the spending multiplier for a poor nation to be smaller than the spending multiplier for a richer nation.
True
False
3.If the government is running a budget deficit, then it must be true that discretionary fiscal policy is expansionary.
True
False
1.Provinces that are required to have annually balanced budgets are likely to
A. experience the same fluctuations in business cycles as those not required to balance their budgets
B. experience less severe business cycles than those not required to balance their budgets
C. experience more severe business cycles than those not required to balance their budgets
Explanation / Answer
1 C. Experience more severe business cycles
Strict BBRs exacerbate business cycle fluctuations; the effect is larger in case of states that can implement a countercyclical fiscal policy; the impact can be observed with a lenient or a strict BBR (Balanced budget rules)
Fiscal policy matters more for the larger states; strict budget requirements increase volatility
2. True
In a rich country, increase in spending in that country are met by supplies originating in the same country; in the case of a poor country, spending is met by supplies originating elsewhere. The multiplier is small in this case.
Multiplier depends on several factors, such as the size and structure of the economy; the current state of the economy; the form of the fiscal stimulus; nature of austerity programs; the direction of change, policy responses; time frame
3.
False
In case of a budget deficit, spending is higher than the revenues; but it may not be due to an expansionary policy - the Government may not have the revenues even to meet the basic needs of providing services to the citizens
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