Question 1

A government budget deficit occurs when government expenditures are:

Accepted Answer

A)   greater than government revenues.
B)   less than government revenues.
C)   increasing and government revenues are increasing.
D)   decreasing and government revenues are decreasing.E) A) and B)
F) None of the above

Question 2

A government economist states that " the collection of personal income tax revenues automatically falls during a recession." This statement best describes how the progressive income tax system:

Accepted Answer

A)   increases crowding out in the economy.
B)   decreases real interest rates in the economy.
C)   offsets the timing problem for fiscal policy.
D)   serves as an automatic stabilizer for the economy.E) B) and D)
F) C) and D)

Question 3

1 to AD2. B)  shift in the aggregate demand curve from AD3 to AD2. C)  shift in the aggregate demand curve from AD1 to AD3. D)  movement along the aggregate demand curve." class="answers-bank-image d-inline" rel="preload" >
- Refer to the above diagram. A contractionary fiscal policy can best be represented by a:

Accepted Answer

A)   shift in the aggregate demand curve from AD1 to AD2.
B)   shift in the aggregate demand curve from AD3 to AD2.
C)   shift in the aggregate demand curve from AD1 to AD3.
D)   movement along the aggregate demand curve.E) A) and C)
F) None of the above

Question 4

A new member of Congress notes that " personal income tax collections automatically fall and transfers and subsidies automatically rise as national income declines." This observation best describes how the personal income tax, transfers, and subsidies:

Accepted Answer

A)   serve as built-in stabilizers.
B)   produce the cyclically adjusted budget.
C)   cause crowding out and reduce equilibrium GDP.
D)   contribute to the recognition lag with fiscal policy.E) None of the above
F) A) and D)

Question 5

Half of the public debt is owned by foreign individuals and institutions.

Accepted Answer

A) True 
 B)False

Question 6

Another term for the full-employment budget is the:

Accepted Answer

A)   actual budget.
B)   cyclical budget.
C)   cyclically adjusted budget.
D)   administrative budget.E) All of the above
F) A) and D)

Question 7

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

Accepted Answer

A)   the cyclically adjusted budget is a better indicator of the state of the economy than the actual budget.
B)   cyclical swings in the economy are produced by the inherent instability found in capitalist economies.
C)   a possible cause of economic fluctuations is due to the use of fiscal policy for political purposes.
D)   there is a trade-off among goals that tends to make the economic policies of state and local governments procyclical.E) B) and C)
F) A) and D)

Question 8

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Accepted Answer

A)   increased government spending or increased taxation, or a combination of the two actions.
B)   increased government spending or decreased taxation, or a combination of the two actions.
C)   increased government spending or increased taxation, but not a combination of the two actions.
D)   decreased government spending or decreased taxation, or a combination of the two actions.E) A) and D)
F) None of the above

Question 9

The public debt as a percent of GDP is lower in the United States than in many other industrial nations.

Accepted Answer

A) True 
 B)False

Question 10

1 are the relevant curves and that the economy is currently at B, which is its full-employment GDP. This economy has a: A)  cyclically adjusted budget surplus only. B)  cyclically adjusted budget deficit only. C)  cyclically adjusted budget surplus and an actual budget surplus. D)  cyclically adjusted deficit and an actual budget deficit." class="answers-bank-image d-inline" rel="preload" > 
-Refer to the above diagram. Assume that G and T1 are the relevant curves and that the economy is currently at B, which is its full-employment GDP. This economy has a:

Accepted Answer

A)   cyclically adjusted budget surplus only.
B)   cyclically adjusted budget deficit only.
C)   cyclically adjusted budget surplus and an actual budget surplus.
D)   cyclically adjusted deficit and an actual budget deficit.E) A) and B)
F) A) and C)

Question 11

How is the public debt calculated?

Accepted Answer

A)   By adding up consumption, investment, government purchases, and net exports and then cumulating the annual totals over the years of the nation
B)   By subtracting consumption and investment from government spending each year and then cumulating the annual totals over the years of the nation
C)   By subtracting current government spending from current government tax revenues
D)   By computing the difference between annual government tax revenues and annual government spending and cumulating the differences over the years of the nationE) B) and C)
F) None of the above

Question 12

One of the timing problems with fiscal policy is an "operational lag" that occurs between the:

Accepted Answer

A)   beginning of a recession and the time that it is recognized that the event is occurring.
B)   time the need for fiscal action is recognized and the time that action is actually taken.
C)   time that fiscal action is taken and the time that action has an impact on output, employment, and the price level.
D)   time that fiscal action has an impact on output, employment, and the price level and the time by which it can be determined if the policy is effective.E) A) and D)
F) All of the above

Question 13

2 and output level Q4. The government then adopts an expansionary fiscal policy to shift the aggregate demand curve. What will be the most likely new equilibrium price level and output? A)  P2 and Q4 B)  P1 and Q1 C)  P2 and Q2 D)  P1 and Q3" class="answers-bank-image d-inline" rel="preload" > 
-Refer to the above graph. Assume that the economy is in a recession with a price level of P2 and output level Q4. The government then adopts an expansionary fiscal policy to shift the aggregate demand curve. What will be the most likely new equilibrium price level and output?

Accepted Answer

A)   P2 and Q4
B)   P1 and Q1
C)   P2 and Q2
D)   P1 and Q3E) B) and D)
F) A) and B)

Question 14

If government spending that gives rise to a budget deficit is for public investment projects such as highways, this spending can increase the economy's future production capacity.

Accepted Answer

A) True 
 B)False

Question 15

Which would be considered a real burden of the public debt on the domestic output of the United States? Public debt that is held by:

Accepted Answer

A)   U.S. citizens.
B)   domestic corporations.
C)   foreign corporations.
D)   the Federal Reserve System.E) A) and C)
F) B) and D)

Question 16

f is the full-employment output. If the economy's current aggregate demand curve is AD0, it would be appropriate for the government to: A)  reduce government expenditures and taxes by equal-size amounts. B)  reduce government expenditures or increase taxes. C)  increase government expenditures or reduce taxes. D)  reduce unemployment compensation benefits." class="answers-bank-image d-inline" rel="preload" >
- Refer to the above diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it would be appropriate for the government to:

Accepted Answer

A)   reduce government expenditures and taxes by equal-size amounts.
B)   reduce government expenditures or increase taxes.
C)   increase government expenditures or reduce taxes.
D)   reduce unemployment compensation benefits.E) A) and D)
F) B) and C)

Question 17

Over 95 percent of the total public debt is held by banks and private individuals.

Accepted Answer

A) True 
 B)False

Question 18

The actual and cyclically adjusted budgets will be equal when:

Accepted Answer

A)   the rate of inflation is zero.
B)   the economy is at full employment.
C)   the balanced-budget multiplier is 1.
D)   taxes have no effect on fiscal policy.E) B) and D)
F) None of the above

Question 19

As of 2014, the Social Security program (excluding Medicare)  constitutes what percentage of U.S. GDP?

Accepted Answer

A)   8.5 percent.
B)   less than one-half of 1 percent.
C)   11.4 percent.
D)   12.2 percent.E) A) and B)
F) C) and D)

Question 20

One important consequence of the public debt in the United States is that:

Accepted Answer

A)   income inequality is reduced.
B)   incentives to work are increased.
C)   it transfers a portion of real output to foreign nations.
D)   there is greater saving at every level of disposable income.E) B) and C)
F) A) and D)

Exam 13: Fiscal Policy, Deficits, and Debt

Another term for the full-employment budget is the:

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A new member of Congress notes that " personal income tax collections automatically fall and transfers and subsidies automatically rise as national income declines." This observation best describes how the personal income tax, transfers, and subsidies:

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One important consequence of the public debt in the United States is that:

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

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- Refer to the above diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it would be appropriate for the government to:

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The actual and cyclically adjusted budgets will be equal when:

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Half of the public debt is owned by foreign individuals and institutions.

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-Refer to the above graph. Assume that the economy is in a recession with a price level of P2 and output level Q4. The government then adopts an expansionary fiscal policy to shift the aggregate demand curve. What will be the most likely new equilibrium price level and output?

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As of 2014, the Social Security program (excluding Medicare) constitutes what percentage of U.S. GDP?

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How is the public debt calculated?

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-Refer to the above diagram. Assume that G and T1 are the relevant curves and that the economy is currently at B, which is its full-employment GDP. This economy has a:

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One of the timing problems with fiscal policy is an "operational lag" that occurs between the:

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The public debt as a percent of GDP is lower in the United States than in many other industrial nations.

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Which would be considered a real burden of the public debt on the domestic output of the United States? Public debt that is held by:

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- Refer to the above diagram. A contractionary fiscal policy can best be represented by a:

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A government budget deficit occurs when government expenditures are:

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Over 95 percent of the total public debt is held by banks and private individuals.

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A government economist states that " the collection of personal income tax revenues automatically falls during a recession." This statement best describes how the progressive income tax system:

Correct AnswerverifiedShow Answer

If government spending that gives rise to a budget deficit is for public investment projects such as highways, this spending can increase the economy's future production capacity.

Correct AnswerverifiedShow Answer

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Correct AnswerverifiedShow Answer

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- Refer to the above diagram, in which Q_f is the full-employment output. If the economy's current aggregate demand curve is AD₀, it would be appropriate for the government to:

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-Refer to the above graph. Assume that the economy is in a recession with a price level of P₂ and output level Q₄. The government then adopts an expansionary fiscal policy to shift the aggregate demand curve. What will be the most likely new equilibrium price level and output?

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-Refer to the above diagram. Assume that G and T₁ are the relevant curves and that the economy is currently at B, which is its full-employment GDP. This economy has a:

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