Question 1

The crowding-out effect may be dampened if the investment-demand curve is shifting to the right.

Accepted Answer

A) True 
 B)False

Question 2

The greatest expansionary impact of a budget deficit will occur when the:

Accepted Answer

A)  government finances the deficit by obtaining newly printed money.
B)  government borrows the money from the general public.
C)  economy is operating in the intermediate range of its aggregate supply curve.
D)  marginal propensity to save for the economy is high.

Question 3

Which cause-and-effect chain would best explain the reason for a decline in net exports? An expansionary fiscal policy:

Accepted Answer

A)  increases domestic interest rates and leads to an appreciation of the dollar that reduces net exports.
B)  decreases interest rates and leads to a depreciation of the dollar that reduces net exports.
C)  increases domestic interest rates and leads to a depreciation of the dollar that reduces net exports.
D)  decreases interest rates and leads to an appreciation of the dollar that reduces net exports.

Question 4

It is more meaningful to measure the growth of the public debt relative to the GDP than to measure it in absolute terms.

Accepted Answer

A) True 
 B)False

Question 5

The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Accepted Answer

A) True 
 B)False

Question 6

If a deficit is financed by issuing new money, the:

Accepted Answer

A)  government is using its accumulated surplus to issue the new money.
B)  government will be competing with private borrowers for funds.
C)  increased demand for funds will drive up the interest rate.
D)  crowding-out of investment can probably be avoided.

Question 7

Refer to the diagram below.If the full employment level of GDP for this economy is at H, the:

Accepted Answer

A)  cyclically adjusted budget will produce a surplus.
B)  cyclically adjusted budget will produce a deficit.
C)  actual budget will produce a deficit.
D)  actual budget will produce a surplus.

Question 8

Currently, the general agreement about a proposed fiscal policy is that:

Accepted Answer

A)  it should be evaluated for its potential positive and negative impacts on long-run productivity growth.
B)  only the short -run impact of it on the economy should be evaluated.
C)  the politicians should not be worried about either the short-run nor long-run effects of a fiscal policy.
D)  it should only be used when the economy is experiencing an inflationary and not a recessionary gap.

Question 9

Assume that aggregate demand in the economy is excessive, causing an inflationary gap.Which of the following would be most in accord with appropriate government fiscal policy?

Accepted Answer

A)  an increase in federal income tax rates
B)  an increase in the size of income tax exemptions for each dependent
C)  passage of legislation providing for the construction of 8,000 new post office buildings
D)  an increase in soil conservation subsidies to farmers

Question 10

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n) :

Accepted Answer

A)  budget lag.
B)  recognition lag.
C)  operational lag.
D)  administrative lag.

Question 11

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of:

Accepted Answer

A)  impounding.
B)  built-in stability.
C)  money creation.
D)  the full-employment budget.

Question 12

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment.If the MPS is .4, then it could increase government spending by:

Accepted Answer

A)  $10 billion.
B)  $20 billion.
C)  $31.25 billion.
D)  $40.50 billion.

Question 13

Crowding-out is the notion that:

Accepted Answer

A)  since tax revenues vary directly with GDP, a rise in the level of GDP will increase the budget surplus and limit expansion.
B)  deficit financing will increase the demand for money, increase the interest rate, and reduce the level of investment spending in the economy.
C)  the full-employment budget is the best indicator of whether a budget deficit crowds out investment.
D)  the actual budget is the best indicator of whether a budget deficit crowds out saving.

Question 14

Cyclically adjusted deficits are:

Accepted Answer

A)  generally smaller than actual deficits.
B)  generally larger than actual deficits.
C)  identical to actual deficits.
D)  opposite to actual deficits.

Question 15

The additional taxes needed to pay the interest on the public debt reduce incentives to work, save, invest, and bear risks.

Accepted Answer

A) True 
 B)False

Question 16

The table below shows the full-employment budget deficit as a percentage of GDP over a five-year period.  Refer to the above information.In which year was fiscal policy expansionary?

Accepted Answer

A)  Year 2
B)  Year 3
C)  Year 4
D)  Year 5

Question 17

An increase in the cyclical deficits will automatically increase the full-employment budget deficit.

Accepted Answer

A) True 
 B)False

Question 18

Built-in stability is synonymous with discretionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 19

If the full-employment GDP for the above economy is at L, the:

Accepted Answer

A)  actual budget will entail a deficit.
B)  cyclically adjusted budget will entail a deficit.
C)  actual budget will entail a surplus.
D)  cyclically adjusted budget will entail a surplus.

Question 20

Fiscal policy refers to the:

Accepted Answer

A)  manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.
B)  manipulation of government spending and taxes to achieve greater equality in the distribution of income.
C)  altering of the interest rate to change aggregate demand.
D)  fact that equal increases in government spending and taxation will be contractionary.

Exam 13: B: Fiscal Policy, Deficits, Surpluses, and Debt

The table below shows the full-employment budget deficit as a percentage of GDP over a five-year period. Refer to the above information.In which year was fiscal policy expansionary?

Correct AnswerverifiedShow Answer

The crowding-out effect may be dampened if the investment-demand curve is shifting to the right.

Correct AnswerverifiedShow Answer

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n) :

Correct AnswerverifiedShow Answer

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment.If the MPS is .4, then it could increase government spending by:

Correct AnswerverifiedShow Answer

If a deficit is financed by issuing new money, the:

Correct AnswerverifiedShow Answer

It is more meaningful to measure the growth of the public debt relative to the GDP than to measure it in absolute terms.

Correct AnswerverifiedShow Answer

The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Correct AnswerverifiedShow Answer

Fiscal policy refers to the:

Correct AnswerverifiedShow Answer

The greatest expansionary impact of a budget deficit will occur when the:

Correct AnswerverifiedShow Answer

Built-in stability is synonymous with discretionary fiscal policy.

Correct AnswerverifiedShow Answer

Cyclically adjusted deficits are:

Correct AnswerverifiedShow Answer

Assume that aggregate demand in the economy is excessive, causing an inflationary gap.Which of the following would be most in accord with appropriate government fiscal policy?

Correct AnswerverifiedShow Answer

The additional taxes needed to pay the interest on the public debt reduce incentives to work, save, invest, and bear risks.

Correct AnswerverifiedShow Answer

An increase in the cyclical deficits will automatically increase the full-employment budget deficit.

Correct AnswerverifiedShow Answer

Currently, the general agreement about a proposed fiscal policy is that:

Correct AnswerverifiedShow Answer

Which cause-and-effect chain would best explain the reason for a decline in net exports? An expansionary fiscal policy:

Correct AnswerverifiedShow Answer

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of:

Correct AnswerverifiedShow Answer

Refer to the diagram below.If the full employment level of GDP for this economy is at H, the:

Correct AnswerverifiedShow Answer

If the full-employment GDP for the above economy is at L, the:

Correct AnswerverifiedShow Answer

Crowding-out is the notion that:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified