Question 1

Which of the following is an appropriate fiscal policy prescription for the government to follow?

Accepted Answer

A) Deficit reduction during a recession. 
B) Deficit reduction when there is excess AD. 
C) Deficit expansion in an inflationary gap. 
D) Deficit reduction during a war. 
A) Deficit reduction during a recession. 
B) Deficit reduction when there is excess AD. 
C) Deficit expansion in an inflationary gap. 
D) Deficit reduction during a war.

Question 2

To pay back Social Security loans,Congress could do all of the following except

Accepted Answer

A) Raise future taxes. 
B) Sell fewer U.S.Treasury bonds. 
C) Increase budget deficits. 
D) Reduce spending on non-Social Security programs. 
A) Raise future taxes. 
B) Sell fewer U.S.Treasury bonds. 
C) Increase budget deficits. 
D) Reduce spending on non-Social Security programs.

Question 3

If the debt is financed externally,then the burden is incurred when the debt is financed.

Accepted Answer

A) True 
 B)False

Question 4

If the federal government balanced its budget,its tax revenues would be equal to its expenditures.

Accepted Answer

A) True 
 B)False

Question 5

All of the following contribute to greater deficits when unemployment rises and reduce the deficit during an inflationary gap except for

Accepted Answer

A) U.S.exports. 
B) Welfare benefits. 
C) Progressive personal income taxes. 
D) Unemployment insurance benefits. 
A) U.S.exports. 
B) Welfare benefits. 
C) Progressive personal income taxes. 
D) Unemployment insurance benefits.

Question 6

The national debt increased by nearly $2 trillion in the 1980s because of all of the following except

Accepted Answer

A) Recessions. 
B) Tax cuts. 
C) Defense spending. 
D) College financing. 
A) Recessions. 
B) Tax cuts. 
C) Defense spending. 
D) College financing.

Question 7

How do automatic stabilizers,on both the expenditure and revenue sides of the budget,respond during a recession?

Accepted Answer

Automatic stabilizers are spending and r

Question 8

If full-employment income and equilibrium income are equal for a country,then a tax cut will result in

Accepted Answer

A) Excess AD. 
B) Output exceeding desired expenditure. 
C) Leakages exceeding injections. 
D) Undesired inventory accumulation. 
A) Excess AD. 
B) Output exceeding desired expenditure. 
C) Leakages exceeding injections. 
D) Undesired inventory accumulation.

Question 9

Deficit financing tends to change the mix of output in the direction of more

Accepted Answer

A) Private sector goods. 
B) International sector goods. 
C) Business sector goods. 
D) Public sector goods. 
A) Private sector goods. 
B) International sector goods. 
C) Business sector goods. 
D) Public sector goods.

Question 10

Debt service

Accepted Answer

A) Refers to the annual interest payments on the debt. 
B) Is a discretionary component of the federal budget. 
C) Does not cost the government because it can issue new debt. 
D) Is a redistribution,so it does not entail opportunity costs. 
A) Refers to the annual interest payments on the debt. 
B) Is a discretionary component of the federal budget. 
C) Does not cost the government because it can issue new debt. 
D) Is a redistribution,so it does not entail opportunity costs.

Question 11

The issuance of new debt in payment of previously issued debt is called refinancing.

Accepted Answer

A) True 
 B)False

Question 12

If the structural deficit is zero,

Accepted Answer

A) Federal tax revenue equals federal government expenditures at any equilibrium GDP. 
B) If the economy goes above full employment,the cyclical deficit will get larger. 
C) If the economy enters a recession,a budget surplus will result,ceteris paribus. 
D) At full employment,the budget is balanced. 
A) Federal tax revenue equals federal government expenditures at any equilibrium GDP. 
B) If the economy goes above full employment,the cyclical deficit will get larger. 
C) If the economy enters a recession,a budget surplus will result,ceteris paribus. 
D) At full employment,the budget is balanced.

Question 13

A decrease in private sector borrowing and spending caused by increased government borrowing is

Accepted Answer

A) Crowding in. 
B) Crowding out. 
C) Fiscal stimulus. 
D) The GDP gap. 
A) Crowding in. 
B) Crowding out. 
C) Fiscal stimulus. 
D) The GDP gap.

Question 14

Refer to Figure 12.1.The concept of crowding in suggests that a government budget surplus would move the economy from point

Accepted Answer

A) A to point C. 
B) C to point A. 
C) E to point F. 
D) B to point A. 
A) A to point C. 
B) C to point A. 
C) E to point F. 
D) B to point A.

Question 15

Which of the following is a possible effect of automatic stabilizers on the federal budget?

Accepted Answer

A) A decrease in the deficit during recessions. 
B) An increase in the deficit when there is AD excess. 
C) An increase in the structural deficit during recessions. 
D) A decrease in the deficit during an expansion. 
A) A decrease in the deficit during recessions. 
B) An increase in the deficit when there is AD excess. 
C) An increase in the structural deficit during recessions. 
D) A decrease in the deficit during an expansion.

Question 16

If the total budget deficit is $200 billion and the deficit at full employment is $120 billion,then the

Accepted Answer

A) Cyclical deficit is $120 billion. 
B) Cyclical deficit is $80 billion. 
C) Structural deficit is $320 billion. 
D) Structural deficit is $80 billion. 
A) Cyclical deficit is $120 billion. 
B) Cyclical deficit is $80 billion. 
C) Structural deficit is $320 billion. 
D) Structural deficit is $80 billion.

Question 17

A government budget surplus may enable all of the following except

Accepted Answer

A) A decrease in taxes. 
B) An increase in income transfers. 
C) An increase in expenditures on goods and services. 
D) A decrease in the money supply. 
A) A decrease in taxes. 
B) An increase in income transfers. 
C) An increase in expenditures on goods and services. 
D) A decrease in the money supply.

Question 18

If full-employment output exceeds equilibrium output,greater deficit spending will result in a

Accepted Answer

A) Smaller recessionary gap. 
B) Smaller inflationary gap. 
C) Larger recessionary gap. 
D) None of the choices are correct. 
A) Smaller recessionary gap. 
B) Smaller inflationary gap. 
C) Larger recessionary gap. 
D) None of the choices are correct.

Question 19

Much of each year's federal budget is considered "uncontrollable" because

Accepted Answer

A) It must be spent for purchases,as opposed to transfer payments. 
B) Most of the current revenues and expenditures are the result of decisions made in prior years. 
C) It is determined by decision makers who do not have the power to change spending and taxes. 
D) None of the choices are correct. 
A) It must be spent for purchases,as opposed to transfer payments. 
B) Most of the current revenues and expenditures are the result of decisions made in prior years. 
C) It is determined by decision makers who do not have the power to change spending and taxes. 
D) None of the choices are correct.

Question 20

Compare and contrast the burden of internally financed debt to externally financed debt.

Accepted Answer

The debt held by U.S.households and inst

Exam 12: Deficits and Debt

Which of the following is an appropriate fiscal policy prescription for the government to follow?

To pay back Social Security loans,Congress could do all of the following except

If the debt is financed externally,then the burden is incurred when the debt is financed.

If the federal government balanced its budget,its tax revenues would be equal to its expenditures.

All of the following contribute to greater deficits when unemployment rises and reduce the deficit during an inflationary gap except for

The national debt increased by nearly $2 trillion in the 1980s because of all of the following except

How do automatic stabilizers,on both the expenditure and revenue sides of the budget,respond during a recession?

If full-employment income and equilibrium income are equal for a country,then a tax cut will result in

Deficit financing tends to change the mix of output in the direction of more

Debt service

The issuance of new debt in payment of previously issued debt is called refinancing.

If the structural deficit is zero,

A decrease in private sector borrowing and spending caused by increased government borrowing is

Refer to Figure 12.1.The concept of crowding in suggests that a government budget surplus would move the economy from point

Which of the following is a possible effect of automatic stabilizers on the federal budget?

If the total budget deficit is $200 billion and the deficit at full employment is $120 billion,then the

A government budget surplus may enable all of the following except

If full-employment output exceeds equilibrium output,greater deficit spending will result in a

Much of each year's federal budget is considered "uncontrollable" because

Compare and contrast the burden of internally financed debt to externally financed debt.

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

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