Question 1

If deficit spending does not contribute to public investment and crowds out private investment,then

Accepted Answer

A) The rate of economic growth will decline,ceteris paribus. 
B) The current generation will bear the total burden of the debt. 
C) Future productive capacity will be enhanced. 
D) The opportunity cost of the debt will be minimized. 
A) The rate of economic growth will decline,ceteris paribus. 
B) The current generation will bear the total burden of the debt. 
C) Future productive capacity will be enhanced. 
D) The opportunity cost of the debt will be minimized.

Question 2

Which of the following is true regarding the "American Recovery and Reinvestment Plan"?

Accepted Answer

A) The massive 2009 stimulus package was designed to jump-start the recession-bound economy. 
B) Critics argued that the massive deficits generated by President Obama's plan would undermine America's financial stability. 
C) Critics argued that in order to pay the deficits created by the plan,the government would be forced to raise taxes and cut spending,which would reverse the boost from the stimulus. 
D) All of the choices are correct. 
A) The massive 2009 stimulus package was designed to jump-start the recession-bound economy. 
B) Critics argued that the massive deficits generated by President Obama's plan would undermine America's financial stability. 
C) Critics argued that in order to pay the deficits created by the plan,the government would be forced to raise taxes and cut spending,which would reverse the boost from the stimulus. 
D) All of the choices are correct.

Question 3

Like deficit ceilings,debt ceilings are political mechanisms for forcing compromises on how best to use budget surpluses or deficits.

Accepted Answer

A) True 
 B)False

Question 4

If the budget deficit for each year is held to a constant nominal value during constant inflationary times,then the inflation-corrected or real value of the total debt would

Accepted Answer

A) Rise at a decreasing rate. 
B) Rise at a constant rate. 
C) Begin to fall,but then continually rise. 
D) Initially rise but eventually would become negative. 
A) Rise at a decreasing rate. 
B) Rise at a constant rate. 
C) Begin to fall,but then continually rise. 
D) Initially rise but eventually would become negative.

Question 5

A progressive income tax system is particularly effective as an automatic stabilizer because

Accepted Answer

A) It reduces demand when income falls. 
B) In a booming economy,taxpayers move into higher tax brackets,which restrains their spending. 
C) During a recession,it causes the budget deficit to fall. 
D) It falls more heavily on taxpayers with high MPCs,which stimulates aggregate demand. 
A) It reduces demand when income falls. 
B) In a booming economy,taxpayers move into higher tax brackets,which restrains their spending. 
C) During a recession,it causes the budget deficit to fall. 
D) It falls more heavily on taxpayers with high MPCs,which stimulates aggregate demand.

Question 6

When the Federal Reserve System buys bonds in the open market,the national debt

Accepted Answer

A) Must increase. 
B) Must increase as long as the Fed buys only newly issued bonds. 
C) Is not affected. 
D) Will decrease because the Fed is a government agency. 
A) Must increase. 
B) Must increase as long as the Fed buys only newly issued bonds. 
C) Is not affected. 
D) Will decrease because the Fed is a government agency.

Question 7

How do rising interest rates cause crowding out?

Accepted Answer

Crowding out occurs when borrowing and s

Question 8

Rising interest rates can cause crowding out,but they are also the result of crowding out.

Accepted Answer

A) True 
 B)False

Question 9

The largest percentage of U.S.national debt to GDP occurred during

Accepted Answer

A) The Civil War. 
B) World War I. 
C) World War II. 
D) The Great Depression. 
A) The Civil War. 
B) World War I. 
C) World War II. 
D) The Great Depression.

Question 10

The amount of the structural deficit is equal to the amount of tax revenue received minus federal expenditures for the current fiscal year.

Accepted Answer

A) True 
 B)False

Question 11

Debt ceilings are designed to

Accepted Answer

A) Reduce the deficit. 
B) Balance the federal budget. 
C) Specifically reduce the debt held by banks. 
D) Do nothing since the Supreme Court held them unconstitutional in 1985. 
A) Reduce the deficit. 
B) Balance the federal budget. 
C) Specifically reduce the debt held by banks. 
D) Do nothing since the Supreme Court held them unconstitutional in 1985.

Question 12

A deficit ceiling directly limits

Accepted Answer

A) The amount by which government spending can exceed government revenue. 
B) The amount of the national debt. 
C) The trade deficit. 
D) Inflation. 
A) The amount by which government spending can exceed government revenue. 
B) The amount of the national debt. 
C) The trade deficit. 
D) Inflation.

Question 13

An increase in private sector borrowing (and spending)caused by decreased government borrowing is known as

Accepted Answer

A) Crowding out. 
B) Crowding in. 
C) Crowding debt. 
D) Debt reduction. 
A) Crowding out. 
B) Crowding in. 
C) Crowding debt. 
D) Debt reduction.

Question 14

If the government uses a budget surplus to pay off old debt,private sector spending may increase.

Accepted Answer

A) True 
 B)False

Question 15

Federal agencies hold roughly ________ percent of all outstanding Treasury bonds.

Accepted Answer

A) 50 
B) 66 
C) 30 
D) 40 
A) 50 
B) 66 
C) 30 
D) 40

Question 16

Which of the following required all new federal government spending initiatives to be offset with increased taxes or cutbacks in other programs?

Accepted Answer

A) Balanced Budget and Emergency Deficit Control Act of 1985. 
B) Gramm-Rudman-Hollings Act of 1985. 
C) The Budget Enforcement Act of 1990. 
D) The Federal Deficit Act of 1982. 
A) Balanced Budget and Emergency Deficit Control Act of 1985. 
B) Gramm-Rudman-Hollings Act of 1985. 
C) The Budget Enforcement Act of 1990. 
D) The Federal Deficit Act of 1982.

Question 17

The only way to stop the growth of the national debt is to eliminate the budget deficits that create debt.

Accepted Answer

A) True 
 B)False

Question 18

An increase in unemployment,ceteris paribus,may

Accepted Answer

A) Lead to decreased government expenditures. 
B) Lead to increased government revenues. 
C) Reduce a budget surplus. 
D) Reduce a budget deficit. 
A) Lead to decreased government expenditures. 
B) Lead to increased government revenues. 
C) Reduce a budget surplus. 
D) Reduce a budget deficit.

Question 19

In the In the News article in the text titled "Fiscal Policy in the Great Depression," President Hoover's prescription in 1932 was for cutbacks in government spending and higher taxes.He was effectively

Accepted Answer

A) Targeting the goal of full employment rather than reduction of inflation. 
B) Decreasing the level of AD. 
C) Applying the Keynesian prescription for handling a depression. 
D) Following the classical approach of laissez faire. 
A) Targeting the goal of full employment rather than reduction of inflation. 
B) Decreasing the level of AD. 
C) Applying the Keynesian prescription for handling a depression. 
D) Following the classical approach of laissez faire.

Question 20

The elements of the federal budget not determined by past legislative or executive commitments are

Accepted Answer

A) Uncontrollable fiscal spending. 
B) Fiscal restraint items. 
C) Discretionary fiscal spending. 
D) Automatic stabilizers. 
A) Uncontrollable fiscal spending. 
B) Fiscal restraint items. 
C) Discretionary fiscal spending. 
D) Automatic stabilizers.

Exam 12: Deficits and Debt

If deficit spending does not contribute to public investment and crowds out private investment,then

Which of the following is true regarding the "American Recovery and Reinvestment Plan"?

Like deficit ceilings,debt ceilings are political mechanisms for forcing compromises on how best to use budget surpluses or deficits.

If the budget deficit for each year is held to a constant nominal value during constant inflationary times,then the inflation-corrected or real value of the total debt would

A progressive income tax system is particularly effective as an automatic stabilizer because

When the Federal Reserve System buys bonds in the open market,the national debt

How do rising interest rates cause crowding out?

Rising interest rates can cause crowding out,but they are also the result of crowding out.

The largest percentage of U.S.national debt to GDP occurred during

The amount of the structural deficit is equal to the amount of tax revenue received minus federal expenditures for the current fiscal year.

Debt ceilings are designed to

A deficit ceiling directly limits

An increase in private sector borrowing (and spending)caused by decreased government borrowing is known as

If the government uses a budget surplus to pay off old debt,private sector spending may increase.

Federal agencies hold roughly ________ percent of all outstanding Treasury bonds.

Which of the following required all new federal government spending initiatives to be offset with increased taxes or cutbacks in other programs?

The only way to stop the growth of the national debt is to eliminate the budget deficits that create debt.

An increase in unemployment,ceteris paribus,may

In the In the News article in the text titled "Fiscal Policy in the Great Depression," President Hoover's prescription in 1932 was for cutbacks in government spending and higher taxes.He was effectively

The elements of the federal budget not determined by past legislative or executive commitments are

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

Filters