Question 1

The two reasons why bankruptcy is a false concern about the public debt are:

Accepted Answer

A)   Government spending and taxation
B)   Refinancing and taxation
C)   Investment and refinancing
D)   Saving and investment

Question 2

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a:

Accepted Answer

A)   Trade deficit
B)   Trade surplus
C)   Budget deficit
D)   Budget surplus

Question 3

Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues:

Accepted Answer

A)   Increase and transfer payments decrease
B)   Decrease and transfer payments increase
C)   And transfer payments both decrease
D)   And transfer payments both increase

Question 4

The following is budget information for a hypothetical economy. All data are in billions of dollars.  Refer to the above table. In which year is there a balanced budget?

Accepted Answer

A)   Year 1
B)   Year 2
C)   Year 3
D)   Year 4

Question 5

Without a change in discretionary fiscal policy, we would expect that if the economy goes into recession, then the:

Accepted Answer

A)   Cyclically-adjusted deficit and the actual deficit would both increase
B)   Cyclically-adjusted deficit and the actual deficit would both decrease
C)   Cyclically-adjusted deficit would stay the same while the actual deficit would increase
D)   Cyclically-adjusted deficit would increase while the actual deficit would stay the same

Question 6

State and local governments are limited in their ability to respond to recessions because of:

Accepted Answer

A)   Local politics and politicians
B)   Their desire to always run budget surpluses
C)   The lack of proper economic research and assistance
D)   Constitutional and other requirements to balance their budgets

Question 7

The table gives data on interest rates and investment demand (in billions of dollars)  in a hypothetical economy. 1 to Id2. At the same time, the interest rate rises from 3% to 4% as the government borrows money to finance the public debt. How much crowding out of private investment will occur in this case? A)  $0 B)  $100 billion C)  $600 billion D)  $700 billion" class="answers-bank-image d-inline" rel="preload" > Refer to the above table. Assume that the public debt is used to expand the capital stock of the economy and that, as a consequence, the investment-demand schedule changes from Id1 to Id2. At the same time, the interest rate rises from 3% to 4% as the government borrows money to finance the public debt. How much crowding out of private investment will occur in this case?

Accepted Answer

A)   $0
B)   $100 billion
C)   $600 billion
D)   $700 billion

Question 8

A budget deficit causes the government to issue or sell Treasury bonds.

Accepted Answer

A) True 
 B)False

Question 9

The table gives data on interest rates and investment demand (in billions of dollars)  in a hypothetical economy. d1 schedule, assume that the government needs to finance the public debt and this public borrowing increases the interest rate from 3% to 4%. How much crowding out of private investment will occur? A)  $100 billion B)  $200 billion C)  $600 billion D)  $700 billion" class="answers-bank-image d-inline" rel="preload" > Refer to the above table. Using the Id1 schedule, assume that the government needs to finance the public debt and this public borrowing increases the interest rate from 3% to 4%. How much crowding out of private investment will occur?

Accepted Answer

A)   $100 billion
B)   $200 billion
C)   $600 billion
D)   $700 billion

Question 10

The so-called "negative taxes" are better known as:

Accepted Answer

A)   Government spending
B)   Transfer payments
C)   Built-in stabilizers
D)   Fiscal multipliers

Question 11

The so-called crowding-out effect refers to government spending crowding out private investment spending.

Accepted Answer

A) True 
 B)False

Question 12

Refer to the figure above. The economy is at equilibrium at point C which is below potential output. What fiscal policy would increase real GDP?

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 13

The payment of interest on the public debt in the U.S. mildly increases income inequality.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Discretionary fiscal policy is often initiated on the advice of the:

Accepted Answer

A)   Congressional Budget Office
B)   Council of Economic Advisers
C)   Joint Economic Committee
D)   Federal Reserve Board

Question 16

The goal of expansionary fiscal policy is to increase:

Accepted Answer

A)   The price level
B)   Aggregate supply
C)   Real GDP
D)   Unemployment

Question 17

Refer to the graph above. Automatic stability in this economy could be enhanced by:

Accepted Answer

A)   Changing the tax system so that the tax line has a steeper slope
B)   Changing the tax system so that the tax line is shifted upward but parallel to its present position
C)   Changing the government expenditures line so that it has a positive slope
D)   Changing the tax system so that the tax line has a flatter slope

Question 18

If the government wishes to increase the level of real GDP, it might reduce:

Accepted Answer

A)   Taxes
B)   Transfer payments
C)   The size of the budget deficit
D)   Its purchases of goods and services

Question 19

In the graph above, tax revenues vary:

Accepted Answer

A)   Directly with the level of GDP
B)   Inversely with the level of GDP
C)   Directly with the level of government spending
D)   Inversely with the level of government spending

Question 20

Proponents of the notion of a "political business cycle" suggest that:

Accepted Answer

A)   The standardized budget is a better indicator of the state of the economy than the actual budget, for political reasons
B)   Cyclical swings in the economy are produced by the inherent political instability found in capitalist economies
C)   A possible cause of economic fluctuations is the use of fiscal policy by policy-makers for political purposes and goals
D)   There is constant political trading among policy-makers that tends to make the economic policies of state and local governments procyclical

Exam 13: Fiscal Policy, Deficits, and Debt

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a:

Correct Answer
verified

Refer to the graph above. Automatic stability in this economy could be enhanced by:

Correct Answer
verified

Correct Answer
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Refer to the figure above. The economy is at equilibrium at point C which is below potential output. What fiscal policy would increase real GDP?

Correct Answer
verified

A budget deficit causes the government to issue or sell Treasury bonds.

Correct Answer
verified

In the graph above, tax revenues vary:

Correct Answer
verified

The so-called crowding-out effect refers to government spending crowding out private investment spending.

Correct Answer
verified

If the government wishes to increase the level of real GDP, it might reduce:

Correct Answer
verified

Proponents of the notion of a "political business cycle" suggest that:

Correct Answer
verified

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 Answer
verified

Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues:

Correct Answer
verified

The so-called "negative taxes" are better known as:

Correct Answer
verified

The goal of expansionary fiscal policy is to increase:

Correct Answer
verified

The two reasons why bankruptcy is a false concern about the public debt are:

Correct Answer
verified

Correct Answer
verified

State and local governments are limited in their ability to respond to recessions because of:

Correct Answer
verified

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the above table. In which year is there a balanced budget?

Correct Answer
verified

Discretionary fiscal policy is often initiated on the advice of the:

Correct Answer
verified

Without a change in discretionary fiscal policy, we would expect that if the economy goes into recession, then the:

Correct Answer
verified

The payment of interest on the public debt in the U.S. mildly increases income inequality.

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, and Debt

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a:

Correct AnswerverifiedShow Answer

Refer to the graph above. Automatic stability in this economy could be enhanced by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the figure above. The economy is at equilibrium at point C which is below potential output. What fiscal policy would increase real GDP?

Correct AnswerverifiedShow Answer

A budget deficit causes the government to issue or sell Treasury bonds.

Correct AnswerverifiedShow Answer

In the graph above, tax revenues vary:

Correct AnswerverifiedShow Answer

The so-called crowding-out effect refers to government spending crowding out private investment spending.

Correct AnswerverifiedShow Answer

If the government wishes to increase the level of real GDP, it might reduce:

Correct AnswerverifiedShow Answer

Proponents of the notion of a "political business cycle" suggest that:

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

Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues:

Correct AnswerverifiedShow Answer

The so-called "negative taxes" are better known as:

Correct AnswerverifiedShow Answer

The goal of expansionary fiscal policy is to increase:

Correct AnswerverifiedShow Answer

The two reasons why bankruptcy is a false concern about the public debt are:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

State and local governments are limited in their ability to respond to recessions because of:

Correct AnswerverifiedShow Answer

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the above table. In which year is there a balanced budget?

Correct AnswerverifiedShow Answer

Discretionary fiscal policy is often initiated on the advice of the:

Correct AnswerverifiedShow Answer

Without a change in discretionary fiscal policy, we would expect that if the economy goes into recession, then the:

Correct AnswerverifiedShow Answer

The payment of interest on the public debt in the U.S. mildly increases income inequality.

Correct AnswerverifiedShow Answer

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