Question 1

Which of the following expansionary fiscal policy changes would be most favored by those economists who think that the government is too large and inefficient?

Accepted Answer

A)  a $40 billion increase in government spending
B)  a $20 billion tax cut and $20 billion increase in government spending
C)  a $10 billion tax cut and $30 billion increase in government spending
D)  a $40 billion tax cutE) All of the above
F) A) and D)

Question 2

The federal budget deficit is found by

Accepted Answer

A)  subtracting government tax revenues plus government borrowing from government spending in a particular year.
B)  subtracting government tax revenues from government spending in a particular year.
C)  cumulating the differences between government spending and tax revenues over all years since the nation's founding.
D)  subtracting government revenues from the noninvestment-type government spending in a particular year.E) C) and D)
F) A) and D)

Question 3

Built-in stability means that

Accepted Answer

A)  an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy.
B)  with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.
C)  Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity.
D)  government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.E) B) and C)
F) All of the above

Question 4

If the economy has a cyclically adjusted budget surplus, this means that

Accepted Answer

A)  the public sector is exerting an expansionary impact on the economy.
B)  tax revenues would exceed government expenditures if full employment were achieved.
C)  the actual budget is necessarily also in surplus.
D)  the economy is actually operating at full employment.E) All of the above
F) C) and D)

Question 5

The crowding-out effect from government borrowing to finance the public debt is reduced when

Accepted Answer

A)  the economy is experiencing a period of high inflation.
B)  the economy is operating at the full-employment level of output.
C)  public investment complements private investment.
D)  public investment substitutes for private investment.E) None of the above
F) All of the above

Question 6

(Last Word)  The combined cost of Social Security and Medicare programs was what percentage of U.S.GDP in 2014?

Accepted Answer

A)  8.5
B)  11.4
C)  17.2
D)  12.2E) A) and D)
F) B) and D)

Question 7

When Social Security contributions have exceeded payouts in the past, the excess amounts were used to help finance the Federal government's budget deficits.

Accepted Answer

A) True 
 B)False

Question 8

An expansionary fiscal policy is shown as a

Accepted Answer

A)  rightward shift in the economy's aggregate demand curve.
B)  movement along an existing aggregate demand curve.
C)  leftward shift in the economy's aggregate supply curve.
D)  leftward shift in the economy's aggregate demand curve.E) None of the above
F) A) and B)

Question 9

The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy.In this case, the crowding-out effect suggests that investment spending will

Accepted Answer

A)  increase, thus partially offsetting the fiscal policy.
B)  increase, thus partially reinforcing the fiscal policy.
C)  decrease, thus partially offsetting the fiscal policy.
D)  decrease, thus partially reinforcing the fiscal policy.E) A) and D)
F) B) and C)

Question 10

Which of the following historically has not been a significant contributor to the U.S.public debt?

Accepted Answer

A)  war financing
B)  tax cuts and expenditure increases in the 1980s
C)  recessions
D)  demand-pull inflationE) All of the above
F) B) and D)

Question 11

Actions by the federal government that decrease the progressivity of the tax system

Accepted Answer

A)  decrease the amount of government spending.
B)  increase the effect of automatic stabilizers.
C)  decrease the effect of automatic stabilizers.
D)  increase the multiplier effect.E) A) and B)
F) A) and C)

Question 12

A decrease in government spending and a cut in taxes would be a pair of fiscal policies that reinforce each other.

Accepted Answer

A) True 
 B)False

Question 13

If the budget deficit becomes smaller, then it will cause the public debt to also become smaller.

Accepted Answer

A) True 
 B)False

Question 14

In Year 1, the actual budget deficit was $200 billion and the cyclically adjusted deficit was $150 billion.In Year 2, the actual budget deficit was $225 billion and the cyclically adjusted deficit was $175 billion.It can be concluded that fiscal policy from Year 1 to Year 2 became more

Accepted Answer

A)  proportional.
B)  progressive.
C)  contractionary.
D)  expansionary.E) B) and C)
F) A) and B)

Question 15

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion 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) A) and B)
F) C) and D)

Question 16

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

Accepted Answer

A) True 
 B)False

Question 17

The average tax rate required to service the public debt is roughly measured by

Accepted Answer

A)  the absolute size of the debt.
B)  the debt as a fraction of the GDP.
C)  interest on the debt as a percentage of the GDP.
D)  the ratio of government spending to the GDP.E) B) and C)
F) A) and B)

Question 18

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will

Accepted Answer

A)  shift the AD curve to the right.
B)  increase the equilibrium GDP.
C)  not affect the AD curve.
D)  shift the AD curve to the left.E) A) and B)
F) B) and D)

Question 19

In 2015, the U.S.public debt was about

Accepted Answer

A)  $18.2 trillion.
B)  $16.4 trillion.
C)  $5.3 trillion.
D)  $11.9 trillion.E) A) and B)
F) A) and C)

Question 20

Which of the following best describes the built-in stabilizers as they function in the United States?

Accepted Answer

A)  The size of the multiplier varies inversely with the level of GDP.
B)  Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises.
C)  Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP.
D)  Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.E) None of the above
F) B) and C)

Exam 33: Fiscal Policy, Deficits, and Debt

Which of the following expansionary fiscal policy changes would be most favored by those economists who think that the government is too large and inefficient?

Correct AnswerverifiedShow Answer

If the budget deficit becomes smaller, then it will cause the public debt to also become smaller.

Correct AnswerverifiedShow Answer

Built-in stability means that

Correct AnswerverifiedShow Answer

An expansionary fiscal policy is shown as a

Correct AnswerverifiedShow Answer

The crowding-out effect from government borrowing to finance the public debt is reduced when

Correct AnswerverifiedShow Answer

(Last Word) The combined cost of Social Security and Medicare programs was what percentage of U.S.GDP in 2014?

Correct AnswerverifiedShow Answer

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

Correct AnswerverifiedShow Answer

The average tax rate required to service the public debt is roughly measured by

Correct AnswerverifiedShow Answer

When Social Security contributions have exceeded payouts in the past, the excess amounts were used to help finance the Federal government's budget deficits.

Correct AnswerverifiedShow Answer

Actions by the federal government that decrease the progressivity of the tax system

Correct AnswerverifiedShow Answer

Which of the following historically has not been a significant contributor to the U.S.public debt?

Correct AnswerverifiedShow Answer

If the economy has a cyclically adjusted budget surplus, this means that

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In 2015, the U.S.public debt was about

Correct AnswerverifiedShow Answer

Which of the following best describes the built-in stabilizers as they function in the United States?

Correct AnswerverifiedShow Answer

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will

Correct AnswerverifiedShow Answer

The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy.In this case, the crowding-out effect suggests that investment spending will

Correct AnswerverifiedShow Answer

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by

Correct AnswerverifiedShow Answer

In Year 1, the actual budget deficit was $200 billion and the cyclically adjusted deficit was $150 billion.In Year 2, the actual budget deficit was $225 billion and the cyclically adjusted deficit was $175 billion.It can be concluded that fiscal policy from Year 1 to Year 2 became more

Correct AnswerverifiedShow Answer

A decrease in government spending and a cut in taxes would be a pair of fiscal policies that reinforce each other.

Correct AnswerverifiedShow Answer

The federal budget deficit is found by

Correct AnswerverifiedShow Answer

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