Question 1

Built-in stability is synonymous with discretionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the diagram below.If the full employment level of GDP for this economy is at H, the:

Accepted Answer

A) cyclically adjusted budget will produce a surplus. 
B) cyclically adjusted budget will produce a deficit. 
C) actual budget will produce a deficit. 
D) actual budget will produce a surplus. 
A) cyclically adjusted budget will produce a surplus. 
B) cyclically adjusted budget will produce a deficit. 
C) actual budget will produce a deficit. 
D) actual budget will produce a surplus.

Question 3

Cyclically adjusted deficits are:

Accepted Answer

A) generally smaller than actual deficits. 
B) generally larger than actual deficits. 
C) identical to actual deficits. 
D) opposite to actual deficits. 
A) generally smaller than actual deficits. 
B) generally larger than actual deficits. 
C) identical to actual deficits. 
D) opposite to actual deficits.

Question 4

Fiscal policy refers to the:

Accepted Answer

A) manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. 
B) manipulation of government spending and taxes to achieve greater equality in the distribution of income. 
C) altering of the interest rate to change aggregate demand. 
D) fact that equal increases in government spending and taxation will be contractionary. 
A) manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. 
B) manipulation of government spending and taxes to achieve greater equality in the distribution of income. 
C) altering of the interest rate to change aggregate demand. 
D) fact that equal increases in government spending and taxation will be contractionary.

Question 5

The additional taxes needed to pay the interest on the public debt reduce incentives to work, save, invest, and bear risks.

Accepted Answer

A) True 
 B)False

Question 6

An increase in the cyclical deficits will automatically increase the full-employment budget deficit.

Accepted Answer

A) True 
 B)False

Question 7

Crowding-out is the notion that:

Accepted Answer

A) since tax revenues vary directly with GDP, a rise in the level of GDP will increase the budget surplus and limit expansion. 
B) deficit financing will increase the demand for money, increase the interest rate, and reduce the level of investment spending in the economy. 
C) the full-employment budget is the best indicator of whether a budget deficit crowds out investment. 
D) the actual budget is the best indicator of whether a budget deficit crowds out saving. 
A) since tax revenues vary directly with GDP, a rise in the level of GDP will increase the budget surplus and limit expansion. 
B) deficit financing will increase the demand for money, increase the interest rate, and reduce the level of investment spending in the economy. 
C) the full-employment budget is the best indicator of whether a budget deficit crowds out investment. 
D) the actual budget is the best indicator of whether a budget deficit crowds out saving.

Question 8

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment.If the MPS is .4, then it could increase government spending by:

Accepted Answer

A) $10 billion. 
B) $20 billion. 
C) $31.25 billion. 
D) $40.50 billion. 
A) $10 billion. 
B) $20 billion. 
C) $31.25 billion. 
D) $40.50 billion.

Question 9

It is more meaningful to measure the growth of the public debt relative to the GDP than to measure it in absolute terms.

Accepted Answer

A) True 
 B)False

Question 10

Currently, the general agreement about a proposed fiscal policy is that:

Accepted Answer

A) it should be evaluated for its potential positive and negative impacts on long-run productivity growth. 
B) only the short -run impact of it on the economy should be evaluated. 
C) the politicians should not be worried about either the short-run nor long-run effects of a fiscal policy. 
D) it should only be used when the economy is experiencing an inflationary and not a recessionary gap. 
A) it should be evaluated for its potential positive and negative impacts on long-run productivity growth. 
B) only the short -run impact of it on the economy should be evaluated. 
C) the politicians should not be worried about either the short-run nor long-run effects of a fiscal policy. 
D) it should only be used when the economy is experiencing an inflationary and not a recessionary gap.

Question 11

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of:

Accepted Answer

A) impounding. 
B) built-in stability. 
C) money creation. 
D) the full-employment budget. 
A) impounding. 
B) built-in stability. 
C) money creation. 
D) the full-employment budget.

Question 12

If the full-employment GDP for the above economy is at L, the:

Accepted Answer

A) actual budget will entail a deficit. 
B) cyclically adjusted budget will entail a deficit. 
C) actual budget will entail a surplus. 
D) cyclically adjusted budget will entail a surplus. 
A) actual budget will entail a deficit. 
B) cyclically adjusted budget will entail a deficit. 
C) actual budget will entail a surplus. 
D) cyclically adjusted budget will entail a surplus.

Question 13

The crowding-out effect may be dampened if the investment-demand curve is shifting to the right.

Accepted Answer

A) True 
 B)False

Question 14

Assume that aggregate demand in the economy is excessive, causing an inflationary gap.Which of the following would be most in accord with appropriate government fiscal policy?

Accepted Answer

A) an increase in federal income tax rates 
B) an increase in the size of income tax exemptions for each dependent 
C) passage of legislation providing for the construction of 8,000 new post office buildings 
D) an increase in soil conservation subsidies to farmers 
A) an increase in federal income tax rates 
B) an increase in the size of income tax exemptions for each dependent 
C) passage of legislation providing for the construction of 8,000 new post office buildings 
D) an increase in soil conservation subsidies to farmers

Question 15

If a deficit is financed by issuing new money, the:

Accepted Answer

A) government is using its accumulated surplus to issue the new money. 
B) government will be competing with private borrowers for funds. 
C) increased demand for funds will drive up the interest rate. 
D) crowding-out of investment can probably be avoided. 
A) government is using its accumulated surplus to issue the new money. 
B) government will be competing with private borrowers for funds. 
C) increased demand for funds will drive up the interest rate. 
D) crowding-out of investment can probably be avoided.

Question 16

The table below shows the full-employment budget deficit as a percentage of GDP over a five-year period.   Refer to the above information.In which year was fiscal policy expansionary?

Accepted Answer

A) Year 2 
B) Year 3 
C) Year 4 
D) Year 5 
A) Year 2 
B) Year 3 
C) Year 4 
D) Year 5

Question 17

The greatest expansionary impact of a budget deficit will occur when the:

Accepted Answer

A) government finances the deficit by obtaining newly printed money. 
B) government borrows the money from the general public. 
C) economy is operating in the intermediate range of its aggregate supply curve. 
D) marginal propensity to save for the economy is high. 
A) government finances the deficit by obtaining newly printed money. 
B) government borrows the money from the general public. 
C) economy is operating in the intermediate range of its aggregate supply curve. 
D) marginal propensity to save for the economy is high.

Question 18

Which cause-and-effect chain would best explain the reason for a decline in net exports? An expansionary fiscal policy:

Accepted Answer

A) increases domestic interest rates and leads to an appreciation of the dollar that reduces net exports. 
B) decreases interest rates and leads to a depreciation of the dollar that reduces net exports. 
C) increases domestic interest rates and leads to a depreciation of the dollar that reduces net exports. 
D) decreases interest rates and leads to an appreciation of the dollar that reduces net exports. 
A) increases domestic interest rates and leads to an appreciation of the dollar that reduces net exports. 
B) decreases interest rates and leads to a depreciation of the dollar that reduces net exports. 
C) increases domestic interest rates and leads to a depreciation of the dollar that reduces net exports. 
D) decreases interest rates and leads to an appreciation of the dollar that reduces net exports.

Question 19

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n):

Accepted Answer

A) budget lag. 
B) recognition lag. 
C) operational lag. 
D) administrative lag. 
A) budget lag. 
B) recognition lag. 
C) operational lag. 
D) administrative lag.

Question 20

The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Accepted Answer

A) True 
 B)False

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

Built-in stability is synonymous with discretionary fiscal policy.

Refer to the diagram below.If the full employment level of GDP for this economy is at H, the:

Cyclically adjusted deficits are:

Fiscal policy refers to the:

The additional taxes needed to pay the interest on the public debt reduce incentives to work, save, invest, and bear risks.

An increase in the cyclical deficits will automatically increase the full-employment budget deficit.

Crowding-out is the notion that:

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment.If the MPS is .4, then it could increase government spending by:

It is more meaningful to measure the growth of the public debt relative to the GDP than to measure it in absolute terms.

Currently, the general agreement about a proposed fiscal policy is that:

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of:

If the full-employment GDP for the above economy is at L, the:

The crowding-out effect may be dampened if the investment-demand curve is shifting to the right.

Assume that aggregate demand in the economy is excessive, causing an inflationary gap.Which of the following would be most in accord with appropriate government fiscal policy?

If a deficit is financed by issuing new money, the:

The table below shows the full-employment budget deficit as a percentage of GDP over a five-year period. Refer to the above information.In which year was fiscal policy expansionary?

The greatest expansionary impact of a budget deficit will occur when the:

Which cause-and-effect chain would best explain the reason for a decline in net exports? An expansionary fiscal policy:

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n):

The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

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

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