Question 1

Due to automatic stabilizers, when income decreases, government transfer spending:

Accepted Answer

A) increases and tax revenues decrease. 
B) decreases and tax revenues increase. 
C) and tax revenues decrease. 
D) and tax revenues increase. 
A) increases and tax revenues decrease. 
B) decreases and tax revenues increase. 
C) and tax revenues decrease. 
D) and tax revenues increase. A

Question 2

The effectiveness of the built-in or automatic stabilizers is limited because:

Accepted Answer

A) the stabilizers produce budget surpluses during recessions. 
B) transfer payments and subsidies increase during inflation and decrease during recessions. 
C) the offset which the stabilizers provide to a change in private spending is less than the change in private spending. 
D) the stabilizers raise the general price level regardless of the phase of the business cycle. 
A) the stabilizers produce budget surpluses during recessions. 
B) transfer payments and subsidies increase during inflation and decrease during recessions. 
C) the offset which the stabilizers provide to a change in private spending is less than the change in private spending. 
D) the stabilizers raise the general price level regardless of the phase of the business cycle. C

Question 3

To understand the quantitative significance of the public debt relative to the economy, it should be:

Accepted Answer

A) divided by the social security trust fund. 
B) multiplied by the size of the population. 
C) measured as a percentage of GDP. 
D) compared to the value of imports and exports. 
A) divided by the social security trust fund. 
B) multiplied by the size of the population. 
C) measured as a percentage of GDP. 
D) compared to the value of imports and exports. C

Question 4

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

Accepted Answer

A) It decreases domestic interest rates, causing the dollar to appreciate and net exports to decrease. 
B) It decreases domestic interest rates, causing the dollar to depreciate and net exports to increase. 
C) It decreases domestic interest rates, causing the dollar to depreciate and net exports to decrease. 
D) It increases domestic interest rates, causing the dollar to appreciate and net exports to decrease. 
A) It decreases domestic interest rates, causing the dollar to appreciate and net exports to decrease. 
B) It decreases domestic interest rates, causing the dollar to depreciate and net exports to increase. 
C) It decreases domestic interest rates, causing the dollar to depreciate and net exports to decrease. 
D) It increases domestic interest rates, causing the dollar to appreciate and net exports to decrease.

Question 5

Refer to the graph given below.   Assume that the investment demand curve of an economy is Id1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n):

Accepted Answer

A) shift of the investment demand curve from Id1 to Id2. 
B) leftward shift of the investment demand curve. 
C) increase in the interest rate from 4 percent to 6 percent and a decline in investment spending of $5 billion. 
D) increase in the interest rate from 6 percent to 8 percent and a decline in investment spending of $40 billion. 
A) shift of the investment demand curve from Id1 to Id2. 
B) leftward shift of the investment demand curve. 
C) increase in the interest rate from 4 percent to 6 percent and a decline in investment spending of $5 billion. 
D) increase in the interest rate from 6 percent to 8 percent and a decline in investment spending of $40 billion.

Question 6

Which of the following statements is correct?

Accepted Answer

A) The cyclically adjusted budget and the actual budget differ because the latter does not take government transfer payments into account. 
B) The cyclically adjusted budget is less likely to show a deficit than is the actual budget. 
C) The cyclically adjusted budget and the actual budget will show the same size deficit or surplus in any given fiscal year. 
D) The cyclically adjusted budget is more likely to show a deficit than is the actual budget. 
A) The cyclically adjusted budget and the actual budget differ because the latter does not take government transfer payments into account. 
B) The cyclically adjusted budget is less likely to show a deficit than is the actual budget. 
C) The cyclically adjusted budget and the actual budget will show the same size deficit or surplus in any given fiscal year. 
D) The cyclically adjusted budget is more likely to show a deficit than is the actual budget.

Question 7

Which are contractionary fiscal policies?

Accepted Answer

A) increased taxation and increased government spending 
B) increased taxation and decreased government spending 
C) decreased taxation and no change in government spending 
D) no change in taxation and increased government spending 
A) increased taxation and increased government spending 
B) increased taxation and decreased government spending 
C) decreased taxation and no change in government spending 
D) no change in taxation and increased government spending

Question 8

Which combination of fiscal policy actions would be most contractionary for an economy experiencing severe demand-pull inflation?

Accepted Answer

A) increase taxes and government spending 
B) decrease taxes and government spending 
C) increase taxes and decrease government spending 
D) decrease taxes and increase government spending 
A) increase taxes and government spending 
B) decrease taxes and government spending 
C) increase taxes and decrease government spending 
D) decrease taxes and increase government spending

Question 9

The financing of a government deficit increases interest rates and, as a result, reduces investment spending.This statement describes:

Accepted Answer

A) the supply-side effects of fiscal policy. 
B) built-in stability. 
C) the crowding-out effect. 
D) the net export effect. 
A) the supply-side effects of fiscal policy. 
B) built-in stability. 
C) the crowding-out effect. 
D) the net export effect.

Question 10

Lines A and B in the above graph represent:

Accepted Answer

A) the crowding-out effect. 
B) the interest-rate effect. 
C) investment demand curves. 
D) money demand curves. 
A) the crowding-out effect. 
B) the interest-rate effect. 
C) investment demand curves. 
D) money demand curves.

Question 11

A cyclically adjusted budget deficit is also called a:

Accepted Answer

A) full- employment deficit. 
B) cyclical deficit. 
C) recession-caused deficit. 
D) built-in stabilizer. 
A) full- employment deficit. 
B) cyclical deficit. 
C) recession-caused deficit. 
D) built-in stabilizer.

Question 12

The "political business cycle" refers to the possibility that:

Accepted Answer

A) incumbent politicians will be re-elected regardless of the state of the economy. 
B) politicians will manipulate the economy to enhance their chances of being re-elected. 
C) there is more inflation during Liberal administrations than during Progressive Conservative administrations. 
D) recessions coincide with election years. 
A) incumbent politicians will be re-elected regardless of the state of the economy. 
B) politicians will manipulate the economy to enhance their chances of being re-elected. 
C) there is more inflation during Liberal administrations than during Progressive Conservative administrations. 
D) recessions coincide with election years.

Question 13

Which policy to finance the public debt might crowd-out private spending?

Accepted Answer

A) borrowing money from the public in the money market 
B) decreasing government spending 
C) creating new money 
D) decreasing taxes 
A) borrowing money from the public in the money market 
B) decreasing government spending 
C) creating new money 
D) decreasing taxes

Question 14

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Accepted Answer

A) crowding-out lag. 
B) recognition lag. 
C) operational lag. 
D) administrative lag. 
A) crowding-out lag. 
B) recognition lag. 
C) operational lag. 
D) administrative lag.

Question 15

A public debt which is owed to foreigners can be burdensome because:

Accepted Answer

A) foreign interest rates are persistently higher than domestic interest rates. 
B) payment of interest reduces the volume of goods and services available for domestic uses. 
C) payment of interest will conflict with a nation's foreign aid programs. 
D) payment of interest will necessarily have a deflationary effect on prices in the paying nation. 
A) foreign interest rates are persistently higher than domestic interest rates. 
B) payment of interest reduces the volume of goods and services available for domestic uses. 
C) payment of interest will conflict with a nation's foreign aid programs. 
D) payment of interest will necessarily have a deflationary effect on prices in the paying nation.

Question 16

Discretionary fiscal policy will stabilize the economy most when:

Accepted Answer

A) deficits are incurred during recessions and surpluses during inflations. 
B) the budget is balanced each year. 
C) deficits are incurred during inflations and surpluses during recessions. 
D) budget surpluses are continuously incurre 
A) deficits are incurred during recessions and surpluses during inflations. 
B) the budget is balanced each year. 
C) deficits are incurred during inflations and surpluses during recessions. 
D) budget surpluses are continuously incurre

Question 17

A specific reduction in government spending will dampen demand-pull inflation by a greater amount, the:

Accepted Answer

A) smaller is the economy's MPC. 
B) flatter is the economy's aggregate supply curve. 
C) smaller is the economy's MPS. 
D) less the economy's built-in stability. 
A) smaller is the economy's MPC. 
B) flatter is the economy's aggregate supply curve. 
C) smaller is the economy's MPS. 
D) less the economy's built-in stability.

Question 18

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion at each price level 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. 
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.

Question 19

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion; (2) investment = $50 billion; (3) government purchases = $100 billion; and (4) net export = $20 billion.If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with the goal of achieving price level stability?

Accepted Answer

A) increase government spending and taxes 
B) decrease government spending and taxes 
C) decrease government spending and increase taxes 
D) increase government spending and decrease taxes 
A) increase government spending and taxes 
B) decrease government spending and taxes 
C) decrease government spending and increase taxes 
D) increase government spending and decrease taxes

Question 20

The crowding-out effect refers to the possibility that deficit spending may lead people to increase their saving in anticipation of higher future taxes.

Accepted Answer

A) True 
 B)False

Exam 13: B: Fiscal Policy, Deficits, Surpluses, and Debt

Due to automatic stabilizers, when income decreases, government transfer spending:

The effectiveness of the built-in or automatic stabilizers is limited because:

To understand the quantitative significance of the public debt relative to the economy, it should be:

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

Refer to the graph given below. Assume that the investment demand curve of an economy is Id1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n):

Which of the following statements is correct?

Which are contractionary fiscal policies?

Which combination of fiscal policy actions would be most contractionary for an economy experiencing severe demand-pull inflation?

The financing of a government deficit increases interest rates and, as a result, reduces investment spending.This statement describes:

Lines A and B in the above graph represent:

A cyclically adjusted budget deficit is also called a:

The "political business cycle" refers to the possibility that:

Which policy to finance the public debt might crowd-out private spending?

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

A public debt which is owed to foreigners can be burdensome because:

Discretionary fiscal policy will stabilize the economy most when:

A specific reduction in government spending will dampen demand-pull inflation by a greater amount, the:

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion at each price level by:

The crowding-out effect refers to the possibility that deficit spending may lead people to increase their saving in anticipation of higher future taxes.

B: Limits, Alternatives, and Choices

A: - Limits, Alternatives, and Choices

B: The Market System and the Circular Flow

A: - The Market System and the Circular Flow

B: Demand, Supply, and Market Equilibrium

A: - Demand, Supply, and Market Equilibrium

B: Market Failures: Public Goods and Externalities

A: - Market Failures: Public Goods and Externalities

B: Governments Role and Government Failure

A: Governments Role and Government Failure

B: an Introduction to Macroeconomics

A: an Introduction to Macroeconomics

B: Measuring the Economys Output

A: Measuring the Economys Output

B: Economic Growth

A: Economic Growth

B: Business Cycles, Unemployment, and Inflation

A: Business Cycles, Unemployment, and Inflation

B: Basic Macroeconomic Relationships

A: Basic Macroeconomic Relationships

B: The Aggregate Expenditures Model

A: The Aggregate Expenditures Model

B: Aggregate Demand and Aggregate Supply

A: Aggregate Demand and Aggregate Supply

A: Fiscal Policy, Deficits, Surpluses, and Debt

B: Money, Banking, and Money Creation

A: Money, Banking, and Money Creation

B: Interest Rates and Monetary Policy

A: Interest Rates and Monetary Policy

C: Financial Economics

A: Long-Run Macroeconomic Adjustments

B: Long-Run Macroeconomic Adjustments

A: International Trade

B: International Trade

A: The Balance of Payments and Exchange Rates

B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

Filters

Refer to the graph given below. Assume that the investment demand curve of an economy is I_d1 in period 1.The crowding-out effect of a large government deficit would be shown as a(n):