Q: If the net public debt in Canada was $800 billion and the GDP was $2 trillion, what was the net public debt as a percentage of GDP?

$\frac{800}{2000} \times 100 = 40\%$

Q: Which formula correctly calculates the deficit-to-GDP ratio?

$\text{Deficit-to-GDP Ratio} = \frac{\text{Budget Deficit}}{\text{GDP}} \times 100$

Question 1

Which of the following best describes a government budget deficit?

Accepted Answer

An excess of government spending over government revenues during a given period of time.

Question 2

Suppose the Canadian government spends $400 billion in a year and collects $350 billion in revenues. What is the budget deficit for that year?

Accepted Answer

$50 billion

Question 3

If the net public debt in Canada was $800 billion and the GDP was $2 trillion, what was the net public debt as a percentage of GDP?

Accepted Answer

$\frac{800}{2000} 	imes 100 = 40\%$

Question 4

Which of the following is true about net public debt?

Accepted Answer

Net public debt is the gross public debt minus all financial assets held by the government.

Question 5

During the COVID-19 pandemic, the Canadian government introduced emergency benefits. What was a major fiscal consequence of this policy?

Accepted Answer

A significant increase in the deficit-to-GDP ratio.

Question 6

If the government runs a budget deficit every year for five years, what happens to the public debt?

Accepted Answer

It accumulates and increases over time.

Question 7

Which of the following would most likely reduce the Canadian government's budget deficit?

Accepted Answer

Reducing expenditures on guaranteed benefits programs.

Question 8

If the market interest rate rises, what is the expected impact on the government's debt charges?

Accepted Answer

Debt charges will increase.

Question 9

In 2021, Canada’s deficit-to-GDP ratio spiked to 14.8%. Which event was primarily responsible for this increase?

Accepted Answer

Government spending on COVID-19 relief programs.

Question 10

If foreign residents hold 30% of Canada’s net public debt, what is a direct consequence for Canada?

Accepted Answer

Interest payments on that portion of the debt are paid outside Canada.

Question 11

Which formula correctly calculates the deficit-to-GDP ratio?

Accepted Answer

$	ext{Deficit-to-GDP Ratio} = \frac{	ext{Budget Deficit}}{	ext{GDP}} 	imes 100$

Question 12

If government expenditures are really investments and the rate of return on these projects exceeds the interest rate paid to foreign residents, what is the likely outcome for Canadian residents?

Accepted Answer

Canadian residents will be economically better off.

Question 13

Which of the following is NOT a way the government could reduce its budget deficit?

Accepted Answer

Increase major transfers to other levels of government.

Question 14

If the economy is below full employment, what is the effect of a government deficit in the short run?

Accepted Answer

It can close the recessionary gap.

Question 15

During the past two decades, real spending on major transfers to other levels of government grew at an average annual rate of 4.5%, while the economy grew at 2.9%. What does this imply?

Accepted Answer

Major transfers are growing faster than the economy.

Question 16

Which of the following statements about debt charges is correct?

Accepted Answer

Debt charges are made up primarily of interest payments on outstanding public debt.

Question 17

If the government wants to achieve a balanced budget, which equation must be satisfied?

Accepted Answer

$	ext{Government Spending} = 	ext{Government Revenues}$

Question 18

If deficits lead to slower growth rates, what is the long-term impact on future generations?

Accepted Answer

Future generations will be poorer.

Question 19

Which of the following is a guaranteed benefit under a Canadian government program?

Accepted Answer

Old Age Security

Question 20

If the government increases both taxes and expenditures by the same amount, what is the immediate effect on the budget deficit?

Accepted Answer

The budget deficit remains unchanged.

Deficit Spending and the Public Debt: Canadian Macroeconomic Perspectives

Study Guide - Practice Questions

Study Guide - Flashcards