Question 1

Lines A and B in the above graph represent:

Accepted Answer

A)  the crowding-out effect.
B)  the interest-rate effect.
C)  investment demand curves.
D)  money demand curves.E) B) and C)
F) A) and B)

Question 2

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion at each price level by:

Accepted Answer

A)  increasing government spending by $4 billion.
B)  increasing government spending by $40 billion.
C)  decreasing taxes by $4 billion.
D)  increasing taxes by $4 billion.E) All of the above
F) B) and C)

Question 3

A public debt which is owed to foreigners can be burdensome because:

Accepted Answer

A)  foreign interest rates are persistently higher than domestic interest rates.
B)  payment of interest reduces the volume of goods and services available for domestic uses.
C)  payment of interest will conflict with a nation's foreign aid programs.
D)  payment of interest will necessarily have a deflationary effect on prices in the paying nation.E) B) and C)
F) None of the above

Question 4

The "political business cycle" refers to the possibility that:

Accepted Answer

A)  incumbent politicians will be re-elected regardless of the state of the economy.
B)  politicians will manipulate the economy to enhance their chances of being re-elected.
C)  there is more inflation during Liberal administrations than during Progressive Conservative administrations.
D)  recessions coincide with election years.E) A) and B)
F) A) and C)

Question 5

The effectiveness of the built-in or automatic stabilizers is limited because:

Accepted Answer

A)  the stabilizers produce budget surpluses during recessions.
B)  transfer payments and subsidies increase during inflation and decrease during recessions.
C)  the offset which the stabilizers provide to a change in private spending is less than the change in private spending.
D)  the stabilizers raise the general price level regardless of the phase of the business cycle.E) B) and D)
F) B) and C) C

Question 6

Refer to the graph given below. d1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n) : A) shift of the investment demand curve from Id1 to Id2. B) leftward shift of the investment demand curve. C) increase in the interest rate from 4 percent to 6 percent and a decline in investment spending of $5 billion. D) increase in the interest rate from 6 percent to 8 percent and a decline in investment spending of $40 billion." class="answers-bank-image d-inline" rel="preload" > Assume that the investment demand curve of an economy is Id1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n) :

Accepted Answer

A)  shift of the investment demand curve from Id1 to Id2.
B)  leftward shift of the investment demand curve.
C)  increase in the interest rate from 4 percent to 6 percent and a decline in investment spending of $5 billion.
D)  increase in the interest rate from 6 percent to 8 percent and a decline in investment spending of $40 billion.E) None of the above
F) B) and C)

Question 7

You are given the following information about aggregate demand at the existing price level for an economy: (1)  consumption = $500 billion; (2)  investment = $50 billion; (3)  government purchases = $100 billion; and (4)  net export = $20 billion.If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with the goal of achieving price level stability?

Accepted Answer

A)  increase government spending and taxes
B)  decrease government spending and taxes
C)  decrease government spending and increase taxes
D)  increase government spending and decrease taxesE) B) and D)
F) All of the above

Question 8

Discretionary fiscal policy will stabilize the economy most when:

Accepted Answer

A)  deficits are incurred during recessions and surpluses during inflations.
B)  the budget is balanced each year.
C)  deficits are incurred during inflations and surpluses during recessions.
D)  budget surpluses are continuously incurreE) B) and C)
F) A) and D)

Question 9

Which of the following statements is correct?

Accepted Answer

A)  The cyclically adjusted budget and the actual budget differ because the latter does not take government transfer payments into account.
B)  The cyclically adjusted budget is less likely to show a deficit than is the actual budget.
C)  The cyclically adjusted budget and the actual budget will show the same size deficit or surplus in any given fiscal year.
D)  The cyclically adjusted budget is more likely to show a deficit than is the actual budget.E) B) and D)
F) C) and D)

Question 10

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

Accepted Answer

A)  It decreases domestic interest rates, causing the dollar to appreciate and net exports to decrease.
B)  It decreases domestic interest rates, causing the dollar to depreciate and net exports to increase.
C)  It decreases domestic interest rates, causing the dollar to depreciate and net exports to decrease.
D)  It increases domestic interest rates, causing the dollar to appreciate and net exports to decrease.E) C) and D)
F) B) and D)

Question 11

Which combination of fiscal policy actions would be most contractionary for an economy experiencing severe demand-pull inflation?

Accepted Answer

A)  increase taxes and government spending
B)  decrease taxes and government spending
C)  increase taxes and decrease government spending
D)  decrease taxes and increase government spendingE) None of the above
F) A) and D)

Question 12

Which are contractionary fiscal policies?

Accepted Answer

A)  increased taxation and increased government spending
B)  increased taxation and decreased government spending
C)  decreased taxation and no change in government spending
D)  no change in taxation and increased government spendingE) B) and C)
F) A) and B)

Question 13

Which policy to finance the public debt might crowd-out private spending?

Accepted Answer

A)  borrowing money from the public in the money market
B)  decreasing government spending
C)  creating new money
D)  decreasing taxesE) All of the above
F) C) and D)

Question 14

The crowding-out effect refers to the possibility that deficit spending may lead people to increase their saving in anticipation of higher future taxes.

Accepted Answer

A) True 
 B)False

Question 15

A specific reduction in government spending will dampen demand-pull inflation by a greater amount, the:

Accepted Answer

A)  smaller is the economy's MPC.
B)  flatter is the economy's aggregate supply curve.
C)  smaller is the economy's MPS.
D)  less the economy's built-in stability.E) A) and C)
F) B) and C)

Question 16

A cyclically adjusted budget deficit is also called a:

Accepted Answer

A)  full- employment deficit.
B)  cyclical deficit.
C)  recession-caused deficit.
D)  built-in stabilizer.E) None of the above
F) A) and C)

Question 17

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Accepted Answer

A)  crowding-out lag.
B)  recognition lag.
C)  operational lag.
D)  administrative lag.E) None of the above
F) A) and D)

Question 18

The financing of a government deficit increases interest rates and, as a result, reduces investment spending.This statement describes:

Accepted Answer

A)  the supply-side effects of fiscal policy.
B)  built-in stability.
C)  the crowding-out effect.
D)  the net export effect.E) A) and D)
F) A) and C)

Question 19

To understand the quantitative significance of the public debt relative to the economy, it should be:

Accepted Answer

A)  divided by the social security trust fund.
B)  multiplied by the size of the population.
C)  measured as a percentage of GDP.
D)  compared to the value of imports and exports.E) A) and B)
F) A) and C) C

Question 20

Due to automatic stabilizers, when income decreases, government transfer spending:

Accepted Answer

A)  increases and tax revenues decrease.
B)  decreases and tax revenues increase.
C)  and tax revenues decrease.
D)  and tax revenues increase.E) B) and C)
F) A) and D) A

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

Lines A and B in the above graph represent:

Correct Answer
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If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion at each price level by:

Correct Answer
verified

A public debt which is owed to foreigners can be burdensome because:

Correct Answer
verified

The "political business cycle" refers to the possibility that:

Correct Answer
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The effectiveness of the built-in or automatic stabilizers is limited because:

Correct Answer
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C

Refer to the graph given below. Assume that the investment demand curve of an economy is I_d1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n) :

Correct Answer
verified

Correct Answer
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Discretionary fiscal policy will stabilize the economy most when:

Correct Answer
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Which of the following statements is correct?

Correct Answer
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Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

Correct Answer
verified

Which combination of fiscal policy actions would be most contractionary for an economy experiencing severe demand-pull inflation?

Correct Answer
verified

Which are contractionary fiscal policies?

Correct Answer
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Which policy to finance the public debt might crowd-out private spending?

Correct Answer
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The crowding-out effect refers to the possibility that deficit spending may lead people to increase their saving in anticipation of higher future taxes.

Correct Answer
verified

A specific reduction in government spending will dampen demand-pull inflation by a greater amount, the:

Correct Answer
verified

A cyclically adjusted budget deficit is also called a:

Correct Answer
verified

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Correct Answer
verified

The financing of a government deficit increases interest rates and, as a result, reduces investment spending.This statement describes:

Correct Answer
verified

To understand the quantitative significance of the public debt relative to the economy, it should be:

Correct Answer
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C

Due to automatic stabilizers, when income decreases, government transfer spending:

Correct Answer
verified
A

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

Lines A and B in the above graph represent:

Correct AnswerverifiedShow Answer

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion at each price level by:

Correct AnswerverifiedShow Answer

A public debt which is owed to foreigners can be burdensome because:

Correct AnswerverifiedShow Answer

The "political business cycle" refers to the possibility that:

Correct AnswerverifiedShow Answer

The effectiveness of the built-in or automatic stabilizers is limited because:

Correct AnswerverifiedC

Refer to the graph given below. Assume that the investment demand curve of an economy is Id1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Discretionary fiscal policy will stabilize the economy most when:

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

Correct AnswerverifiedShow Answer

Which combination of fiscal policy actions would be most contractionary for an economy experiencing severe demand-pull inflation?

Correct AnswerverifiedShow Answer

Which are contractionary fiscal policies?

Correct AnswerverifiedShow Answer

Which policy to finance the public debt might crowd-out private spending?

Correct AnswerverifiedShow Answer

The crowding-out effect refers to the possibility that deficit spending may lead people to increase their saving in anticipation of higher future taxes.

Correct AnswerverifiedShow Answer

A specific reduction in government spending will dampen demand-pull inflation by a greater amount, the:

Correct AnswerverifiedShow Answer

A cyclically adjusted budget deficit is also called a:

Correct AnswerverifiedShow Answer

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Correct AnswerverifiedShow Answer

The financing of a government deficit increases interest rates and, as a result, reduces investment spending.This statement describes:

Correct AnswerverifiedShow Answer

To understand the quantitative significance of the public debt relative to the economy, it should be:

Correct AnswerverifiedC

Due to automatic stabilizers, when income decreases, government transfer spending:

Correct AnswerverifiedA

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C

Refer to the graph given below. Assume that the investment demand curve of an economy is I_d1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n) :

Correct Answer
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C

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A