Question 1

In 2009, the U.S. budget deficit was $1.4 trillion.

Accepted Answer

A) True 
 B)False

Question 2

In the short run, a surplus federal budget _____.

Accepted Answer

A)   reduces national saving
B)   boosts domestic saving
C)   stimulates aggregate demand
D)   promotes economic growth in the long run
E)   increases the federal debt

Question 3

One way of improving the federal government budget process is to:

Accepted Answer

A)   switch to a two-year or biennial budget.
B)   remove the Council of Economic Advisers from the process.
C)   detail budgeting by focusing on all groupings and line items.
D)   provide for automatic annual increases in all budget categories.
E)   eliminate the role of Congressional committees in the process.

Question 4

Crowding out occurs because lower interest rates discourage saving and make it harder to borrow.

Accepted Answer

A) True 
 B)False

Question 5

If the federal government budget deficit increases, then interest rates will _____, the U.S. dollar will _____, and the foreign trade deficit will _____.

Accepted Answer

A)   increase; depreciate; decrease
B)   increase; appreciate; increase
C)   increase; depreciate; increase
D)   decrease; appreciate; increase
E)   decrease; depreciate; decrease

Question 6

The federal budget is:

Accepted Answer

A)   submitted by Congress to the President and contains proposals for tax increases.
B)   submitted by Congress to the President and contains proposals for government expenditures.
C)   always in balance, with receipts equal to expenditures.
D)   equal to government purchases plus cash and in-kind transfer payments.
E)   usually planned for the calendar year, which starts from January.

Question 7

A disadvantage of functional finance is that it:

Accepted Answer

A)   does not focus on producing the potential level of output in an economy.
B)   increases the level of unemployment during recessions.
C)   allows chronic deficits that magnify into national debt, allowing it to reach an alarming level.
D)   requires that the budget is balanced even during times of war.
E)   magnifies fluctuations in the business cycle.

Question 8

Before the Great Depression, federal deficits occurred primarily during wartime.

Accepted Answer

A) True 
 B)False

Question 9

In order for the government to increase spending, it must increase taxes to finance that spending.

Accepted Answer

A) True 
 B)False

Question 10

In the United States, since the Great Depression, the federal government has:

Accepted Answer

A)   run budget deficits only in periods of recession.
B)   run a budget deficit in almost every year.
C)   practiced a policy of annually balancing the budget.
D)   run budget deficits only in wartime.
E)   run a surplus in most years.

Question 11

Transfer payments are included in the government budget deficit but not included in the government purchases component of GDP.

Accepted Answer

A) True 
 B)False

Question 12

Except for World War II, the U.S. deficits from 2009 to 2012 were the largest deficits in the nation's history relative to GDP, even larger than during the Great Depression.

Accepted Answer

A) True 
 B)False

Question 13

Crowding in occurs when government spending improves business expectations about the future and leads to higher business investment spending.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is true of the federal budget?

Accepted Answer

A)   The federal budget is a plan that describes a government's monetary policy for the current financial year.
B)   The federal budget is a plan that describes a government's fiscal policy for the current financial year.
C)   The federal budget is a plan that describes the president's take on the economy.
D)   The federal budget is a plan for federal government outlays and revenues for a specified period, usually a year.
E)   The federal budget is a plan that describes the eligibility criteria of the major entitlement programs taken up by Congress for the current financial year.

Question 15

Other things equal, an increase in defense spending will increase the budget deficit.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not a problem associated with the U.S. federal budget process?

Accepted Answer

A)   The congressional committee framework
B)   The lengthy budget process
C)   The failure to meet deadlines
D)   The lack of detail in the budget
E)   Uncontrollable budget items

Question 17

If a federal budget deficit causes crowding out, _____.

Accepted Answer

A)   real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because the marginal propensity to consume decreases
B)   real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because investment decreases
C)   interest rates fall, reducing the burden of the debt
D)   firms become more willing to invest
E)   interest rates fall, so that decreases in investment and government purchases of goods and services exactly offset the expansionary effect of the deficit

Question 18

The entire U.S. federal budget process, beginning with the delivery of the President's budget to Congress and ending with the beginning of the fiscal year, takes about _____.

Accepted Answer

A)   one month
B)   six months
C)   nine months
D)   one year
E)   three months

Question 19

The budget deficit tends to decline during periods of recession and to increase during periods of economic recovery.

Accepted Answer

A) True 
 B)False

Question 20

Among the following cases, the opportunity cost of crowding out is the smallest when the government spends dollars:

Accepted Answer

A)   staffing the Internal Revenue Service hotline.
B)   printing stationery for new members of Congress.
C)   placing photographs of the new President in government and diplomatic offices worldwide.
D)   on Social Security benefits.
E)   on new interstate highways.

Exam 12: Federal Budgets and Public Policy

The federal budget is:

Correct AnswerverifiedShow Answer

If the federal government budget deficit increases, then interest rates will _____, the U.S. dollar will _____, and the foreign trade deficit will _____.

Correct AnswerverifiedShow Answer

Transfer payments are included in the government budget deficit but not included in the government purchases component of GDP.

Correct AnswerverifiedShow Answer

In the United States, since the Great Depression, the federal government has:

Correct AnswerverifiedShow Answer

In order for the government to increase spending, it must increase taxes to finance that spending.

Correct AnswerverifiedShow Answer

Which of the following is not a problem associated with the U.S. federal budget process?

Correct AnswerverifiedShow Answer

In the short run, a surplus federal budget _____.

Correct AnswerverifiedShow Answer

Crowding out occurs because lower interest rates discourage saving and make it harder to borrow.

Correct AnswerverifiedShow Answer

Other things equal, an increase in defense spending will increase the budget deficit.

Correct AnswerverifiedShow Answer

Before the Great Depression, federal deficits occurred primarily during wartime.

Correct AnswerverifiedShow Answer

The budget deficit tends to decline during periods of recession and to increase during periods of economic recovery.

Correct AnswerverifiedShow Answer

In 2009, the U.S. budget deficit was $1.4 trillion.

Correct AnswerverifiedShow Answer

Which of the following is true of the federal budget?

Correct AnswerverifiedShow Answer

Except for World War II, the U.S. deficits from 2009 to 2012 were the largest deficits in the nation's history relative to GDP, even larger than during the Great Depression.

Correct AnswerverifiedShow Answer

A disadvantage of functional finance is that it:

Correct AnswerverifiedShow Answer

The entire U.S. federal budget process, beginning with the delivery of the President's budget to Congress and ending with the beginning of the fiscal year, takes about _____.

Correct AnswerverifiedShow Answer

Crowding in occurs when government spending improves business expectations about the future and leads to higher business investment spending.

Correct AnswerverifiedShow Answer

One way of improving the federal government budget process is to:

Correct AnswerverifiedShow Answer

If a federal budget deficit causes crowding out, _____.

Correct AnswerverifiedShow Answer

Among the following cases, the opportunity cost of crowding out is the smallest when the government spends dollars:

Correct AnswerverifiedShow Answer

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If the federal government budget deficit increases, then interest rates will ___, the U.S. dollar will _, and the foreign trade deficit will ___.

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