Question 1

Crowding out is a decrease in private investment caused by

Accepted Answer

A)   increased taxation by the government.
B)   increased borrowing by the government.
C)   increased consumer spending by households.
D)   increased exports to buyers in other nations.

Question 2

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. The budget will entail a deﬁcit

Accepted Answer

A)   at all levels of GDP.
B)   at any level of GDP above $400.
C)   at any level of GDP below $400.
D)   only when GDP is stable.

Question 3

Refer to the diagram. The degree of built-in stability in the economy could be increased by

Accepted Answer

A)   reducing government purchases so that the purchases line shifts downward but parallel to its present position.
B)   changing the tax system so that the tax line is shifted downward but parallel to its present position.
C)   changing the tax system so that the tax line has a greater slope.
D)   altering the government expenditures line so that it has a positive slope.

Question 4

Deﬁne public investments.

Accepted Answer

Public investments are government expend...

Question 5

A major reason that the public debt cannot bankrupt the federal government is because

Accepted Answer

A)   the public debt is mostly held by foreigners.
B)   the federal government has the Social Security Trust Fund.
C)   the public debt can be easily reﬁnanced by issuing new bonds.
D)   the federal government can draw on its gold reserves.

Question 6

The crowding-out effect will be minimal when the economy is in a severe recession.

Accepted Answer

A) True 
 B)False

Question 7

The cyclically adjusted deﬁcit as a percentage of GDP is 2 percent in Year 1. This cyclically adjusted deﬁcit becomes 1 percent of GDP in Year 2. It can be concluded that from Year 1 to Year 2,

Accepted Answer

A)   ﬁscal policy was more expansionary.
B)   ﬁscal policy was more contractionary.
C)   the Federal government is decreasing taxes.
D)   the Federal government is increasing spending.

Question 8

Which of the following serves as an automatic stabilizer in the economy?

Accepted Answer

A)   interest rates
B)   exchange rates
C)   the inﬂation rate
D)   the progressive income tax

Question 9

The actual and cyclically adjusted budgets will be equal when the economy is at full employment.

Accepted Answer

A) True 
 B)False

Question 10

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. In this economy,

Accepted Answer

A)   tax revenues and government spending both vary directly with GDP.
B)   tax revenues vary directly with GDP, but government spending is independent of GDP.
C)   tax revenues and government spending both vary inversely with GDP.
D)   government spending varies directly with GDP, but tax revenues are independent of GDP.

Question 11

The payment of interest on the public debt in the United States mildly increases income inequality.

Accepted Answer

A) True 
 B)False

Question 12

Year  Actual Budget Deficit (-)  or  Surplus (+)   Cyclically Adjusted Deficit (-)  or Surplus (+) 1+1.4%+0.1%2+2.5+1.13+1.3+1.14−1.5−1.15−3.4−2.76−3.5−2.47−2.6−1.88−1.9−1.89−1.3−1.4\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Actual Budget Deficit (-)  or } \\text { Surplus (+)  }\end{array} & \begin{array} { c } \text { Cyclically Adjusted Deficit (-)  or Surplus } \( + ) \end{array} \\hline 1 & + 1.4 \% & + 0.1 \% \\hline 2 & + 2.5 & + 1.1 \\hline 3 & + 1.3 & + 1.1 \\hline 4 & - 1.5 & - 1.1 \\hline 5 & - 3.4 & - 2.7 \\hline 6 & - 3.5 & - 2.4 \\hline 7 & - 2.6 & - 1.8 \\hline 8 & - 1.9 & - 1.8 \\hline 9 & - 1.3 & - 1.4 \\hline\end{array} Year 123456789​ Actual Budget Deficit (-)  or  Surplus (+)  ​+1.4%+2.5+1.3−1.5−3.4−3.5−2.6−1.9−1.3​ Cyclically Adjusted Deficit (-)  or Surplus (+) ​+0.1%+1.1+1.1−1.1−2.7−2.4−1.8−1.8−1.4​​  Refer to the data in the table. The direction of ?scal policy became more contractionary from

Accepted Answer

A)   Year 7 to 8.
B)   Year 3 to 4.
C)   Year 4 to 5.
D)   Year 5 to 6.

Question 13

When Social Security contributions have exceeded payouts in the past, the excess amounts were used
to help ﬁnance the federal government's budget deﬁcits.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is an important real consequence of the public debt of the United States?

Accepted Answer

A)   It will threaten to bankrupt the federal government.
B)   It discourages saving among the general public.
C)   It decreases the inequality in the distribution of income in the U.S.
D)   Its consequent higher interest rates lead to fewer incentives to bear risk and innovate.

Question 15

If the MPC in the economy is 0.75, government could shift the aggregate demand curve rightward by
$30 billion by cutting taxes by $10 billion.

Accepted Answer

A) True 
 B)False

Question 16

Accepted Answer

A)   shift aggregate demand by increasing taxes
B)   shift aggregate demand by decreasing transfer payments
C)   shift aggregate demand by decreasing government spending
D)   shift aggregate demand by increasing transfer payments

Question 17

An appropriate ﬁscal policy for a severe recession is

Accepted Answer

A)   a decrease in government spending.
B)   a decrease in tax rates.
C)   appreciation of the dollar.
D)   an increase in interest rates.

Question 18

Government  Spending  Tax Revenues  GDP  Year 1 $450$425$2,000 Year 2 5004503,000 Year 3 6005004,000 Year 4 6406205,000 Year 5 6805804,800 Year 6 6006205,000\begin{array} { | c | c | c | c | } \hline & \begin{array} { c } 	ext { Government } \	ext { Spending }\end{array} & 	ext { Tax Revenues } & 	ext { GDP } \\hline 	ext { Year 1 } & \$ 450 & \$ 425 & \$ 2,000 \\hline 	ext { Year 2 } & 500 & 450 & 3,000 \\hline 	ext { Year 3 } & 600 & 500 & 4,000 \\hline 	ext { Year 4 } & 640 & 620 & 5,000 \\hline 	ext { Year 5 } & 680 & 580 & 4,800 \\hline 	ext { Year 6 } & 600 & 620 & 5,000 \\hline\end{array} Year 1  Year 2  Year 3  Year 4  Year 5  Year 6 ​ Government  Spending ​$450500600640680600​ Tax Revenues $425450500620580620​ GDP $2,0003,0004,0005,0004,8005,000​​  The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. As a percentage of GDP, the

Accepted Answer

A)   budget de?cit was 3.9 percent in year 4.
B)   budget surplus was less than 1 percent in year 6.
C)   public debt was 3 percent in year 6.
D)   public debt was 12.5 percent in year 1.

Question 19

If the full-employment GDP for the economy is at L, then we can say with certainty that the

Accepted Answer

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

Question 20

Built-in stability is synonymous with discretionary ﬁscal policy.

Accepted Answer

A) True 
 B)False

Exam 13: Fiscal Policy, Deficits, and Debt

Correct Answer
verified

Which of the following is an important real consequence of the public debt of the United States?

Correct Answer
verified

If the full-employment GDP for the economy is at L, then we can say with certainty that the

Correct Answer
verified

If the MPC in the economy is 0.75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

Correct Answer
verified

Crowding out is a decrease in private investment caused by

Correct Answer
verified

Correct Answer
verified

The crowding-out effect will be minimal when the economy is in a severe recession.

Correct Answer
verified

A major reason that the public debt cannot bankrupt the federal government is because

Correct Answer
verified

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. The budget will entail a deﬁcit

Correct Answer
verified

The actual and cyclically adjusted budgets will be equal when the economy is at full employment.

Correct Answer
verified

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. In this economy,

Correct Answer
verified

When Social Security contributions have exceeded payouts in the past, the excess amounts were used to help ﬁnance the federal government's budget deﬁcits.

Correct Answer
verified

Correct Answer
verified

Refer to the diagram. The degree of built-in stability in the economy could be increased by

Correct Answer
verified

The cyclically adjusted deﬁcit as a percentage of GDP is 2 percent in Year 1. This cyclically adjusted deﬁcit becomes 1 percent of GDP in Year 2. It can be concluded that from Year 1 to Year 2,

Correct Answer
verified

Which of the following serves as an automatic stabilizer in the economy?

Correct Answer
verified

An appropriate ﬁscal policy for a severe recession is

Correct Answer
verified

The payment of interest on the public debt in the United States mildly increases income inequality.

Correct Answer
verified

Deﬁne public investments.

Correct Answer
verified
Public investments are government expend...
View Answer

Built-in stability is synonymous with discretionary ﬁscal policy.

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, and Debt

Correct AnswerverifiedShow Answer

Which of the following is an important real consequence of the public debt of the United States?

Correct AnswerverifiedShow Answer

If the full-employment GDP for the economy is at L, then we can say with certainty that the

Correct AnswerverifiedShow Answer

If the MPC in the economy is 0.75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

Correct AnswerverifiedShow Answer

Crowding out is a decrease in private investment caused by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The crowding-out effect will be minimal when the economy is in a severe recession.

Correct AnswerverifiedShow Answer

A major reason that the public debt cannot bankrupt the federal government is because

Correct AnswerverifiedShow Answer

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. The budget will entail a deﬁcit

Correct AnswerverifiedShow Answer

The actual and cyclically adjusted budgets will be equal when the economy is at full employment.

Correct AnswerverifiedShow Answer

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. In this economy,

Correct AnswerverifiedShow Answer

When Social Security contributions have exceeded payouts in the past, the excess amounts were used to help ﬁnance the federal government's budget deﬁcits.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the diagram. The degree of built-in stability in the economy could be increased by

Correct AnswerverifiedShow Answer

The cyclically adjusted deﬁcit as a percentage of GDP is 2 percent in Year 1. This cyclically adjusted deﬁcit becomes 1 percent of GDP in Year 2. It can be concluded that from Year 1 to Year 2,

Correct AnswerverifiedShow Answer

Which of the following serves as an automatic stabilizer in the economy?

Correct AnswerverifiedShow Answer

An appropriate ﬁscal policy for a severe recession is

Correct AnswerverifiedShow Answer

The payment of interest on the public debt in the United States mildly increases income inequality.

Correct AnswerverifiedShow Answer

Deﬁne public investments.

Correct AnswerverifiedPublic investments are government expend...View AnswerShow Answer

Built-in stability is synonymous with discretionary ﬁscal policy.

Correct AnswerverifiedShow Answer

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Public investments are government expend...
View Answer

Correct Answer
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