Module M13 Quiz: National Accounting and Fiscal Policy
30 questions ยท Intermediate ยท Mix of multiple choice, calculation, and short answer
How to use
Attempt each question before clicking Show Answer. For calculation questions, write out your working before checking.
Question 1
Lesson L01 ยท Gdp
GNI differs from GDP by adding:
Type: Multiple Choice
- A) Government transfers
- B) Net factor income from abroad
- C) Depreciation
- D) Import duties
Show Answer
Answer: B) Net factor income from abroad
GNI = GDP + net factor income from abroad (wages and profits of residents overseas minus payments to foreign residents).
Question 2
Lesson L01 ยท Nni = Gni Depreciation = (2100+30) 150 = $1,980Bn
If GDP=\(2,100bn net factor income=+\)30bn and depreciation=$150bn what is NNI?
Type: Calculation
Show Answer
Answer:
$1,980bn
Question 3
Lesson L01 ยท National Accounts
The sectoral balances identity states that the sum of (S-I) (T-G) and (M-X) equals:
Type: Multiple Choice
- A) GDP
- B) Zero
- C) National saving
- D) The current account
Show Answer
Answer: B) Zero
By accounting identity all sector financial balances must sum to zero across the economy.
Question 4
Lesson L01 ยท National Accounts
If the private sector surplus (S-I)=+2% of GDP and the government runs a deficit (T-G)=-3% what must the current account balance be?
Type: Calculation
Show Answer
Answer: CA = +1% (surplus)
(2%) + (-3%) + CA = 0 โ CA = +1% surplus
Question 5
Lesson L01 ยท Gdp
Why is NNI a better welfare measure than GDP?
Type: Short Answer
Show Answer
Answer: NNI subtracts depreciation and foreign factor payments leaving net income actually available to residents.
GDP includes income earned by foreigners and ignores wear on capital stock.
Question 6
Lesson L02 ยท Fiscal Policy
In the Keynesian cross equilibrium occurs when:
Type: Multiple Choice
- A) Investment equals saving
- B) Planned expenditure equals actual output
- C) Government spending equals taxes
- D) Imports equal exports
Show Answer
Answer: B) Planned expenditure equals actual output
Equilibrium: Y = A + bY requires planned spending to equal actual output.
Question 7
Lesson L02 ยท Y = A/(1 B+M) = 400/0.25 = $1,600Bn*
With autonomous spending A=$400bn and MPC b=0.8 import propensity m=0.05 calculate equilibrium Y.
Type: Calculation
Show Answer
Answer:
$1,600bn
Question 8
Lesson L02 ยท Fiscal Policy
What is the slope of the planned expenditure line in the Keynesian cross?
Type: Multiple Choice
- A) 1
- B) MPC (b)
- C) MPC minus import propensity (b-m)
- D) 1/(1-b+m)
Show Answer
Answer: C) MPC minus import propensity (b-m)
The slope is b-m: each extra dollar of income raises consumption by b but leaks m to imports.
Question 9
Lesson L02 ยท Fiscal Policy
Explain the adjustment process when actual output exceeds planned expenditure in the Keynesian cross.
Type: Short Answer
Show Answer
Answer: Firms face unplanned inventory build-up and cut production until output falls to the planned expenditure level.
Inventory signals guide firms to adjust output toward equilibrium.
Question 10
Lesson L02 ยท Fiscal Policy
The paradox of thrift states that if all households increase saving:
Type: Multiple Choice
- A) GDP rises permanently
- B) GDP is unchanged in the long run
- C) Equilibrium income falls reducing actual saving back to the original level
- D) Investment rises to absorb new saving
Show Answer
Answer: C) Equilibrium income falls reducing actual saving back to the original level
Higher saving reduces consumption โ lower Y โ lower income โ saving returns to original level; the paradox.
Question 11
Lesson L03 ยท Investment
The investment function I = ฤช - b_invรi implies that investment:
Type: Multiple Choice
- A) Rises when interest rates rise
- B) Falls when interest rates rise
- C) Is independent of interest rates
- D) Rises with output
Show Answer
Answer: B) Falls when interest rates rise
Higher interest rates raise the cost of capital reducing profitable investment projects.
Question 12
Lesson L03 ยท I = 200 500ร0.04 = 200 20 = $180Bn
If ฤช=$200bn b_inv=500 and i=4% (0.04) calculate investment.
Type: Calculation
Show Answer
Answer:
$180bn
Question 13
Lesson L03 ยท Investment
The accelerator theory of investment says investment rises when:
Type: Multiple Choice
- A) Interest rates fall
- B) The stock of capital is large
- C) Output growth accelerates
- D) Government spending rises
Show Answer
Answer: C) Output growth accelerates
The accelerator links investment to changes in output โ faster growth requires more capital.
Question 14
Lesson L03 ยท Investment
What are Keynes's 'animal spirits' and why do they matter for investment?
Type: Short Answer
Show Answer
Answer: Animal spirits are volatile investor confidence and expectations that drive investment independently of fundamentals.
Investment depends on subjective expectations about future returns not just current interest rates.
Question 15
Lesson L03 ยท Investment
Which best explains why investment is more volatile than consumption?
Type: Multiple Choice
- A) Investment depends on animal spirits and interest rates while consumption depends on stable permanent income
- B) Investment is taxed more heavily
- C) Investment only occurs in the public sector
- D) Consumption includes housing
Show Answer
Answer: A) Investment depends on animal spirits and interest rates while consumption depends on stable permanent income
Investment's dual dependence on interest rates and expectations makes it inherently more volatile.
Question 16
Lesson L04 ยท Fiscal Policy
With MPC b=0.75 and import propensity m=0.05 the government spending multiplier equals:
Type: Calculation
Show Answer
Answer: 3.33
k_G = 1/(1-0.75+0.05) = 1/0.3 = 3.33
Question 17
Lesson L04 ยท Fiscal Policy
The tax multiplier is smaller than the government spending multiplier because:
Type: Multiple Choice
- A) Taxes are always larger
- B) A tax cut raises disposable income but households save part of it โ only MPCรฮT enters spending
- C) Government spending is more efficient
- D) Taxes affect imports more
Show Answer
Answer: B) A tax cut raises disposable income but households save part of it โ only MPCรฮT enters spending
k_T = -b/(1-b+m) vs k_G = 1/(1-b+m); the factor b<1 makes k_T smaller in absolute value.
Question 18
Lesson L04 ยท Fiscal Policy
A balanced budget (ฮG=ฮT=$50bn) with b=0.8 m=0.1. What is the change in Y?
Type: Calculation
Show Answer
Answer: $50bn
ฮY = k_GรฮG + k_Tร(-ฮT) = (1/0.3)ร50 + (-0.8/0.3)ร(-50) = 166.7 - 133.3 = $50bn (balanced budget multiplier=1)
Question 19
Lesson L04 ยท Fiscal Policy
Explain why the balanced budget multiplier equals 1.
Type: Short Answer
Show Answer
Answer: Spending increases Y by k_GรฮG while tax increase reduces Y by k_TรฮT. Net effect = (k_G - |k_T|)รฮG = 1 since k_G - |k_T| = 1/(1-b+m) - b/(1-b+m) = (1-b)/(1-b+m) โ 1 when m is small.
The government spending effect always exceeds the tax drag by exactly ฮG.
Question 20
Lesson L04 ยท Fiscal Policy
Australia's COVID JobKeeper ($89bn) was a transfer not direct spending. How does this change the multiplier?
Type: Multiple Choice
- A) No change โ all spending is equivalent
- B) The effective multiplier is bรk_G = b/(1-b+m) which is smaller than k_G
- C) Transfers have zero multiplier
- D) Transfers have a larger multiplier than direct spending
Show Answer
Answer: B) The effective multiplier is bรk_G = b/(1-b+m) which is smaller than k_G
Transfers enter via disposable income so only the MPC fraction becomes spending on the first round.
Question 21
Lesson L05 ยท Fiscal Policy
Which is an example of an automatic stabiliser?
Type: Multiple Choice
- A) A discretionary stimulus package
- B) Progressive income tax (lower tax revenue in recessions)
- C) Infrastructure investment
- D) Government bond issuance
Show Answer
Answer: B) Progressive income tax (lower tax revenue in recessions)
Progressive taxes automatically reduce the tax burden in recessions without legislative action.
Question 22
Lesson L05 ยท Fiscal Policy
The cyclically-adjusted budget balance removes:
Type: Multiple Choice
- A) All government spending
- B) The impact of the economic cycle on revenues and spending
- C) Infrastructure costs
- D) Defence expenditure
Show Answer
Answer: B) The impact of the economic cycle on revenues and spending
The CAB strips out cyclical fluctuations to reveal the underlying structural fiscal position.
Question 23
Lesson L05 ยท Fiscal Policy
If actual deficit is 2% of GDP and the output gap is -3% with sensitivity 0.5 what is the structural deficit?
Type: Calculation
Show Answer
Answer: 0.5%
Structural deficit = actual deficit - (sensitivity ร output gap) = 2% - (0.5ร(-3%)) = 2% - (-1.5%) = 0.5%
Question 24
Lesson L05 ยท Fiscal Policy
Why do economists prefer the cyclically-adjusted balance over the headline deficit?
Type: Short Answer
Show Answer
Answer: The headline deficit mechanically improves in booms and worsens in recessions making it hard to assess underlying fiscal policy stance.
The CAB reveals whether fiscal policy is genuinely tight or loose independent of the cycle.
Question 25
Lesson L05 ยท Fiscal Policy
Australia's budget moved to surplus in FY2023. Is this necessarily evidence of fiscal tightening?
Type: Multiple Choice
- A) Yes โ a surplus always means tight fiscal policy
- B) No โ the surplus partly reflects the economic cycle and commodity price windfalls not structural tightening
- C) Yes โ all surpluses reduce debt
- D) No โ because the government was still spending
Show Answer
Answer: B) No โ the surplus partly reflects the economic cycle and commodity price windfalls not structural tightening
The structural balance adjusting for the commodity boom and strong labour market shows a more modest genuine tightening.
Question 26
Lesson L06 ยท Fiscal Policy
Australia's total COVID fiscal response was approximately:
Type: Multiple Choice
- A) $50bn
- B) $100bn
- C) $300bn
- D) $600bn
Show Answer
Answer: C) $300bn
Federal and state combined stimulus reached ~$300bn including JobKeeper HomeBuilder and health measures.
Question 27
Lesson L06 ยท Fiscal Policy
With transfer multiplier b/(1-b+m) b=0.8 m=0.1 what was JobKeeper's ($89bn) theoretical GDP impact?
Type: Calculation
Show Answer
Answer: $237bn
k_T = 0.8/0.3 = 2.67; 89 ร 2.67 = \(237bn (theoretical; actual ~\)80bn using Treasury multiplier of 0.9)
Question 28
Lesson L06 ยท Fiscal Policy
Australia's GDP fell only -2.4% in FY2020 vs OECD average -5%. Which factor was LEAST relevant?
Type: Multiple Choice
- A) JobKeeper preserving firm-worker links
- B) China's continued demand for iron ore
- C) Australia having a fixed exchange rate
- D) APRA-regulated bank stability
Show Answer
Answer: C) Australia having a fixed exchange rate
Australia had a floating AUD โ this is incorrect as a listed factor. The AUD depreciated helpfully during COVID.
Question 29
Lesson L06 ยท Fiscal Policy
The NDIS is growing at ~14% per annum. What fiscal risk does this create?
Type: Short Answer
Show Answer
Answer: If unchecked NDIS spending will become a dominant structural spending pressure crowding out other priorities and requiring either higher taxes or cuts elsewhere.
Growing at 14% pa the NDIS doubles every 5 years creating structural fiscal pressure.
Question 30
Lesson L06 ยท National Accounts
Australia's FY2023 surplus was ~$22bn. Using the S-I identity if private saving rose by $30bn and investment fell by $8bn what does the identity imply for the current account?
Type: Calculation
Show Answer
Answer: CA improved by $60bn (rough)
(S-I)+(T-G)+(M-X)=0; if govt surplus +\(22bn and private surplus rose by ~\)38bn (30+8) then CA deficit must narrow by ~$60bn