Question 1

The American Recovery and Reinvestment Act of 2009 included mostly

Accepted Answer

A)  increases in taxes and in government spending.
B)  decreases in taxes and in government spending.
C)  increases in government spending and decreases in taxes.
D)  decreases in government spending and increases in taxes.E) None of the above
F) All of the above

Question 2

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases.Full-employment GDP is $200 billion.To obtain full employment under these conditions, the government should

Accepted Answer

A)  encourage personal saving by increasing the interest rate on government bonds.
B)  decrease government expenditures.
C)  reduce tax rates and/or increase government spending.
D)  discourage private investment by increasing corporate income taxes.E) A) and B)
F) A) and C)

Question 3

The cyclically adjusted budget deficit in an economy is zero.If this economy goes into recession, then the actual government budget will be

Accepted Answer

A)  balanced.
B)  in deficit.
C)  in surplus.
D)  expanding.E) B) and C)
F) A) and D)

Question 4

A major concern with the Social Security trust fund is that

Accepted Answer

A)  surpluses for Social Security are too large.
B)  the Federal government buys too many government securities.
C)  costs for administering the fund are greater than the current revenue.
D)  the fund will be exhausted in a couple of decades.E) B) and D)
F) None of the above

Question 5

Of the U.S.federal debt held by foreigners in 2015, China held roughly

Accepted Answer

A)  80 percent.
B)  67 percent.
C)  50 percent.
D)  20 percent.E) A) and B)
F) A) and C)

Question 6

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that

Accepted Answer

A)  reinforce changes in GDP.
B)  help offset changes in GDP.
C)  produce a cyclically adjusted budget.
D)  produce a standardized budget.E) C) and D)
F) A) and D)

Question 7

Discretionary fiscal policy refers to

Accepted Answer

A)  any change in government spending or taxes that destabilizes the economy.
B)  the authority that the president has to change personal income tax rates.
C)  intentional changes in taxes and government expenditures made by Congress to stabilize the economy.
D)  the changes in taxes and transfers that occur as GDP changes.E) None of the above
F) A) and B)

Question 8

Payment of interest on the U.S.public debt

Accepted Answer

A)  increases the current domestic standard of living in the United States.
B)  has no effect on the distribution of income.
C)  is thought to decrease income inequality.
D)  is thought to increase income inequality.E) B) and C)
F) B) and D)

Question 9

When the economy is at full employment,

Accepted Answer

A)  one cannot generalize in comparing the actual and the cyclically adjusted budgets.
B)  the cyclically adjusted budget will show a surplus and the actual budget will show a deficit.
C)  the actual budget will show a surplus and the cyclically adjusted budget will show a deficit.
D)  the actual and the cyclically adjusted budgets will be equal.E) All of the above
F) B) and C)

Question 10

Which one of the following might offset a crowding-out effect of financing a large public debt?

Accepted Answer

A)  a decline in net exports
B)  an increase in public investment
C)  a decrease in the money supply
D)  a decline in public investmentE) A) and C)
F) A) and B)

Question 11

When current tax revenues exceed current government expenditures and the economy is achieving full employment,

Accepted Answer

A)  the cyclically adjusted budget has neither a deficit nor a surplus.
B)  the cyclically adjusted budget may have either a deficit or a surplus.
C)  the cyclically adjusted budget has a surplus.
D)  the government is engaging in an expansionary fiscal policy.E) A) and D)
F) None of the above

Question 12

Fiscal policy is mainly undertaken by the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 13

Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $100 billion.To achieve full-employment output (exactly) , government should

Accepted Answer

A)  increase government expenditures by $100 billion.
B)  increase government expenditures by $50 billion.
C)  reduce taxes by $50 billion.
D)  reduce taxes by $200 billion.E) B) and C)
F) All of the above

Question 14

Expansionary fiscal policy is so named because it involves an expansion of the nation's money supply.

Accepted Answer

A) True 
 B)False

Question 15

A given reduction in government spending will dampen demand-pull inflation by a greater amount when the

Accepted Answer

A)  economy's MPS is large.
B)  economy's aggregate supply curve is flat.
C)  economy's aggregate supply curve is steep.
D)  unemployment rate is high.E) A) and B)
F) A) and C)

Question 16

The crowding-out effect arises when

Accepted Answer

A)  government lends in the money market, thus decreasing interest rates.
B)  government borrows in the money market, thus decreasing interest rates.
C)  government lends in the money market, thus increasing interest rates.
D)  government borrows in the money market, thus causing an increase in interest rates.E) None of the above
F) B) and C)

Question 17

An economy is experiencing a high rate of inflation.The government wants to reduce consumption by $36 billion to reduce inflationary pressure.The MPC is 0.75.By how much should the government raise taxes to achieve its objective?

Accepted Answer

A)  $6 billion
B)  $9 billion
C)  $12 billion
D)  $16 billionE) A) and D)
F) None of the above

Question 18

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the

Accepted Answer

A)  start of the recession and the time it takes to recognize that the recession has started.
B)  start of a predicted recession and the actual start of the recession.
C)  time fiscal action is taken and the time that the action has its effect on the economy.
D)  time the need for the fiscal action is recognized and the time that the action is taken.E) B) and D)
F) A) and D)

Question 19

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 is the economy's built-in stability.E) A) and D)
F) None of the above

Question 20

The largest proportion of the U.S.public debt is held by

Accepted Answer

A)  the U.S.public (individuals, businesses, financial institutions, and government) .
B)  foreign individuals and institutions.
C)  the Federal Reserve System.
D)  U.S.government agencies.E) B) and C)
F) All of the above

Exam 33: Fiscal Policy, Deficits, and Debt

Payment of interest on the U.S.public debt

Correct Answer
verified

Fiscal policy is mainly undertaken by the Federal Reserve.

Correct Answer
verified

When current tax revenues exceed current government expenditures and the economy is achieving full employment,

Correct Answer
verified

Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $100 billion.To achieve full-employment output (exactly) , government should

Correct Answer
verified

Which one of the following might offset a crowding-out effect of financing a large public debt?

Correct Answer
verified

Expansionary fiscal policy is so named because it involves an expansion of the nation's money supply.

Correct Answer
verified

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the

Correct Answer
verified

A given reduction in government spending will dampen demand-pull inflation by a greater amount when the

Correct Answer
verified

Correct Answer
verified

The largest proportion of the U.S.public debt is held by

Correct Answer
verified

A major concern with the Social Security trust fund is that

Correct Answer
verified

When the economy is at full employment,

Correct Answer
verified

The American Recovery and Reinvestment Act of 2009 included mostly

Correct Answer
verified

An economy is experiencing a high rate of inflation.The government wants to reduce consumption by $36 billion to reduce inflationary pressure.The MPC is 0.75.By how much should the government raise taxes to achieve its objective?

Correct Answer
verified

The crowding-out effect arises when

Correct Answer
verified

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

Correct Answer
verified

Of the U.S.federal debt held by foreigners in 2015, China held roughly

Correct Answer
verified

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that

Correct Answer
verified

The cyclically adjusted budget deficit in an economy is zero.If this economy goes into recession, then the actual government budget will be

Correct Answer
verified

Discretionary fiscal policy refers to

Correct Answer
verified

Exam 33: Fiscal Policy, Deficits, and Debt

Payment of interest on the U.S.public debt

Correct AnswerverifiedShow Answer

Fiscal policy is mainly undertaken by the Federal Reserve.

Correct AnswerverifiedShow Answer

When current tax revenues exceed current government expenditures and the economy is achieving full employment,

Correct AnswerverifiedShow Answer

Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $100 billion.To achieve full-employment output (exactly) , government should

Correct AnswerverifiedShow Answer

Which one of the following might offset a crowding-out effect of financing a large public debt?

Correct AnswerverifiedShow Answer

Expansionary fiscal policy is so named because it involves an expansion of the nation's money supply.

Correct AnswerverifiedShow Answer

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the

Correct AnswerverifiedShow Answer

A given reduction in government spending will dampen demand-pull inflation by a greater amount when the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The largest proportion of the U.S.public debt is held by

Correct AnswerverifiedShow Answer

A major concern with the Social Security trust fund is that

Correct AnswerverifiedShow Answer

When the economy is at full employment,

Correct AnswerverifiedShow Answer

The American Recovery and Reinvestment Act of 2009 included mostly

Correct AnswerverifiedShow Answer

An economy is experiencing a high rate of inflation.The government wants to reduce consumption by $36 billion to reduce inflationary pressure.The MPC is 0.75.By how much should the government raise taxes to achieve its objective?

Correct AnswerverifiedShow Answer

The crowding-out effect arises when

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Of the U.S.federal debt held by foreigners in 2015, China held roughly

Correct AnswerverifiedShow Answer

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that

Correct AnswerverifiedShow Answer

The cyclically adjusted budget deficit in an economy is zero.If this economy goes into recession, then the actual government budget will be

Correct AnswerverifiedShow Answer

Discretionary fiscal policy refers to

Correct AnswerverifiedShow Answer

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