Question 1

When using discretionary fiscal policy to counter a fluctuation in the economy, policymakers should

Accepted Answer

A) make sure the policy is carried out in a timely manner. 
B) use government purchases as an instrument only if the economy is in a recession. 
C) use taxes as an instrument only if the economy is in a boom. 
D) make sure that changes in government purchases will have an effect on real GDP. 
E) make sure that transfer payments are held constant. 
A) make sure the policy is carried out in a timely manner. 
B) use government purchases as an instrument only if the economy is in a recession. 
C) use taxes as an instrument only if the economy is in a boom. 
D) make sure that changes in government purchases will have an effect on real GDP. 
E) make sure that transfer payments are held constant.

Question 2

U.S. government debt in 2017 was approximately

Accepted Answer

A) $15,000 billion. 
B) $3,000 million. 
C) $3,500 million. 
D) $4,000 trillion. 
E) $5,000 billion. 
A) $15,000 billion. 
B) $3,000 million. 
C) $3,500 million. 
D) $4,000 trillion. 
E) $5,000 billion.

Question 3

Automatic fiscal policy is an example of a policy rule.

Accepted Answer

A) True 
 B)False

Question 4

The president can change only a small part of the budget each year.

Accepted Answer

A) True 
 B)False

Question 5

Automatic stabilizers refer to

Accepted Answer

A) the Fed's monetary policy rule. 
B) the self-adjusting nature of a market economy. 
C) the fact that Congress is called into session whenever there is a recession. 
D) taxes and government spending that change automatically whenever the state of the economy changes. 
E) the tendency for changes in inflation to return the economy to potential GDP. 
A) the Fed's monetary policy rule. 
B) the self-adjusting nature of a market economy. 
C) the fact that Congress is called into session whenever there is a recession. 
D) taxes and government spending that change automatically whenever the state of the economy changes. 
E) the tendency for changes in inflation to return the economy to potential GDP.

Question 6

Policy rules tend to have the economy running a budget deficit during a recession and a budget surplus during an expansion.

Accepted Answer

A) True 
 B)False

Question 7

In which of the following years was the debt to GDP ratio the highest?

Accepted Answer

A) 1960 
B) 1950 
C) 1973 
D) 1992 
E) 1985 
A) 1960 
B) 1950 
C) 1973 
D) 1992 
E) 1985

Question 8

Suppose the budget deficit for a hypothetical economy fell from $107 billion in 2016 to $40 billion in 2017.

Accepted Answer

The answer of Suppose the budget deficit for a hypothetical...

Question 9

Social security, Medicare, and Medicaid are expected to grow very rapidly in the coming years.

Accepted Answer

A) True 
 B)False

Question 10

In practice, automatic fiscal policy has helped stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 11

The stimulus package of 2009 was widely accepted by economists as an appropriate response to the crisis at hand. Supporters of the plan included fiscally conservative economists Robert Barro and Eugene Fama.

Accepted Answer

A) True 
 B)False

Question 12

Suppose a government has $4,000 billion of debt. This year, real GDP is $8,000 billion, the tax rate is 30 percent, and government spending is $2,000 billion. Which of the following is true?

Accepted Answer

A) The deficit will decrease by $400 billion. 
B) The debt will increase by $400 billion. 
C) The deficit will increase by $400 billion. 
D) The debt will decrease by $400 billion. 
E) Both the deficit and the debt will increase by $400 billion. 
A) The deficit will decrease by $400 billion. 
B) The debt will increase by $400 billion. 
C) The deficit will increase by $400 billion. 
D) The debt will decrease by $400 billion. 
E) Both the deficit and the debt will increase by $400 billion.

Question 13

Early each year, the president of the United States issues an economic report, which contains the economic forecast for the year. This report is prepared by which of the following?

Accepted Answer

A) By the Fed. 
B) By the Department of the Treasury. 
C) By the president's Council of Economic Advisers. 
D) By the CIA. 
E) None of these is correct. 
A) By the Fed. 
B) By the Department of the Treasury. 
C) By the president's Council of Economic Advisers. 
D) By the CIA. 
E) None of these is correct.

Question 14

Which of the following statements is true?

Accepted Answer

A) There is no relationship between the federal deficit and the federal debt. 
B) A federal deficit adds to the federal debt. 
C) The change in the federal deficit each year equals the federal debt. 
D) The federal debt is the same as the federal deficit. 
E) The federal debt grew in the period when there was a federal budget surplus. 
A) There is no relationship between the federal deficit and the federal debt. 
B) A federal deficit adds to the federal debt. 
C) The change in the federal deficit each year equals the federal debt. 
D) The federal debt is the same as the federal deficit. 
E) The federal debt grew in the period when there was a federal budget surplus.

Question 15

The fact that taxes and government spending change whenever the state of the economy changes results in

Accepted Answer

A) more severe recessions and booms. 
B) a more destabilized economy. 
C) the need for more discretionary policy. 
D) less severe recessions and booms. 
E) the need for Federal Reserve intervention. 
A) more severe recessions and booms. 
B) a more destabilized economy. 
C) the need for more discretionary policy. 
D) less severe recessions and booms. 
E) the need for Federal Reserve intervention.

Question 16

Early each year, the president of the United States issues an economic report, which contains the economic forecast for the year and is prepared by the CIa.

Accepted Answer

A) True 
 B)False

Question 17

Exhibit 26-1  
-According to Exhibit 26-1, when real GDP equals potential GDP,

Accepted Answer

A) the cyclical budget is less than the structural budget. 
B) there is a budget deficit. 
C) the budget is balanced. 
D) there is a budget surplus. 
E) the cyclical budget is greater than the structural budget. 
A) the cyclical budget is less than the structural budget. 
B) there is a budget deficit. 
C) the budget is balanced. 
D) there is a budget surplus. 
E) the cyclical budget is greater than the structural budget.

Question 18

President Bill Clinton's 1994 Economic Report presented the case for "shifting federal spending priorities from consumption to investment," a key fiscal policy principle of his administration.

Accepted Answer

A) True 
 B)False

Question 19

The total amount of outstanding loans owed by the federal government is known as

Accepted Answer

A) the budget deficit. 
B) the federal debt. 
C) the current account deficit. 
D) the yearly U.S.government deficit. 
E) None of these 
A) the budget deficit. 
B) the federal debt. 
C) the current account deficit. 
D) the yearly U.S.government deficit. 
E) None of these

Question 20

Since ____, the U.S. federal government has been running a budget deficit.

Accepted Answer

A) 1970 
B) 1997 
C) 2002 
D) 2000 
E) 1969 
A) 1970 
B) 1997 
C) 2002 
D) 2000 
E) 1969

Exam 26: Fiscal Policy

When using discretionary fiscal policy to counter a fluctuation in the economy, policymakers should

U.S. government debt in 2017 was approximately

Automatic fiscal policy is an example of a policy rule.

The president can change only a small part of the budget each year.

Automatic stabilizers refer to

Policy rules tend to have the economy running a budget deficit during a recession and a budget surplus during an expansion.

In which of the following years was the debt to GDP ratio the highest?

Suppose the budget deficit for a hypothetical economy fell from $107 billion in 2016 to $40 billion in 2017.

Social security, Medicare, and Medicaid are expected to grow very rapidly in the coming years.

In practice, automatic fiscal policy has helped stabilize the economy.

The stimulus package of 2009 was widely accepted by economists as an appropriate response to the crisis at hand. Supporters of the plan included fiscally conservative economists Robert Barro and Eugene Fama.

Suppose a government has $4,000 billion of debt. This year, real GDP is $8,000 billion, the tax rate is 30 percent, and government spending is $2,000 billion. Which of the following is true?

Early each year, the president of the United States issues an economic report, which contains the economic forecast for the year. This report is prepared by which of the following?

Which of the following statements is true?

The fact that taxes and government spending change whenever the state of the economy changes results in

Early each year, the president of the United States issues an economic report, which contains the economic forecast for the year and is prepared by the CIa.

Exhibit 26-1 -According to Exhibit 26-1, when real GDP equals potential GDP,

President Bill Clinton's 1994 Economic Report presented the case for "shifting federal spending priorities from consumption to investment," a key fiscal policy principle of his administration.

The total amount of outstanding loans owed by the federal government is known as

Since ____, the U.S. federal government has been running a budget deficit.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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