Question 1

An example of an automatic stabilizer is:

Accepted Answer

A)  changing the tax laws to increase the marginal tax rates. 
B)  the interest the government pays on loans. 
C)  the food stamp program. 
D)  the indexation of social security benefits to the consumer price index. 
A)  changing the tax laws to increase the marginal tax rates. 
B)  the interest the government pays on loans. 
C)  the food stamp program. 
D)  the indexation of social security benefits to the consumer price index.

Question 2

If the Ricardian Equivalence were true, the effect of an increase in government expenditure

Accepted Answer

A)  will increase investment by the amount of the increased government spending. 
B)  will increase investment by more than the increase in government spending. 
C)  will have no effect on investment. 
D)  will decrease investment by the amount of the government spending. 
A)  will increase investment by the amount of the increased government spending. 
B)  will increase investment by more than the increase in government spending. 
C)  will have no effect on investment. 
D)  will decrease investment by the amount of the government spending.

Question 3

Between 1996 and 1997, the budget deficit in Egypt fell dramatically. Other things being constant, this decline should have made interest rates _______ and investment _______ .

Accepted Answer

A)  rise; fall 
B)  fall; fall 
C)  rise; rise 
D)  fall; rise 
A)  rise; fall 
B)  fall; fall 
C)  rise; rise 
D)  fall; rise

Question 4

Which is not a way in which the federal government can finance its expenditure?

Accepted Answer

A)  tax revenues 
B)  creating money 
C)  issuing bonds 
D)  buying federal government securities 
A)  tax revenues 
B)  creating money 
C)  issuing bonds 
D)  buying federal government securities

Question 5

Recall Application 3, "Is a VAT in our Future?" to answer the following questions.
-Based on what you learned from the application, the VAT is a form of a flat tax.

Accepted Answer

A) True 
 B)False

Question 6

A tax system that discourages savings hurts long- run growth prospects because:

Accepted Answer

A)  the trade balance deteriorates. 
B)  the federal budget turns into surplus. 
C)  consumption spending remains constant. 
D)  investment spending decreases. 
A)  the trade balance deteriorates. 
B)  the federal budget turns into surplus. 
C)  consumption spending remains constant. 
D)  investment spending decreases.

Question 7

In 2001, the federal budget turned _______ and, as a result of this, it is expected that the ratio of government debt to GDP is expected to _______.

Accepted Answer

A)  from a deficit into a surplus ; decrease 
B)  from a surplus into a deficit ; decrease 
C)  from a surplus into a deficit ; increase 
D)  from a deficit into a surplus ; increase 
A)  from a deficit into a surplus ; decrease 
B)  from a surplus into a deficit ; decrease 
C)  from a surplus into a deficit ; increase 
D)  from a deficit into a surplus ; increase

Question 8

Recall Application 2, "Would a Policy Rule Have Prevented the Housing Boom? ," to answer the following questions:
-According to the application, which of the following did John Taylor identify as the cause of the housing boom from 2001- 2004?

Accepted Answer

A)  the Treasury's bailout of banks 
B)  the Fed's "easy money" policy 
C)  the Fed's "tight money" policy 
D)  Congress' tax cuts 
A)  the Treasury's bailout of banks 
B)  the Fed's "easy money" policy 
C)  the Fed's "tight money" policy 
D)  Congress' tax cuts

Question 9

The nation's total federal debt represents the total of all accumulated deficits minus surpluses over time.

Accepted Answer

A) True 
 B)False

Question 10

Suppose that the government debt is $100 million at the beginning of the year. If government collects $55 million in taxes and incurs $50 million in expenditures this year, then the government is experiencing a _______ and the debt will be _______ at the end of the year.

Accepted Answer

A)  deficit, $105 million 
B)  surplus, $95 million 
C)  surplus, $105 million 
D)  deficit, $95 million 
A)  deficit, $105 million 
B)  surplus, $95 million 
C)  surplus, $105 million 
D)  deficit, $95 million

Question 11

Is it possible for the Fed to reduce the inflation rate with little increase in the unemployment rate? Explain.

Accepted Answer

Yes, it is possible for the Fed to lower

Question 12

If the government experiences a budget deficit that it finances through borrowing, then the country's Debt/GDP ratio will always increase, even if the economy experiences economic growth.

Accepted Answer

A) True 
 B)False

Question 13

Allowing the Fed to set its own inflation targets,

Accepted Answer

A)  would require a constitutional amendment. 
B)  would make the Fed even more independent from Congress. 
C)  would diminish the Fed's authority and control over the economy. 
D)  would eliminate the need for the Treasury Department. 
A)  would require a constitutional amendment. 
B)  would make the Fed even more independent from Congress. 
C)  would diminish the Fed's authority and control over the economy. 
D)  would eliminate the need for the Treasury Department.

Question 14

Some argue that deficits can cause a smaller government because:

Accepted Answer

A)  deficits make it harder for politicians to print money. 
B)  deficits make it easier for politicians to print money. 
C)  deficits make it easier for politicians to increase spending. 
D)  deficits make it harder for politician to increase spending 
A)  deficits make it harder for politicians to print money. 
B)  deficits make it easier for politicians to print money. 
C)  deficits make it easier for politicians to increase spending. 
D)  deficits make it harder for politician to increase spending

Question 15

One way to prove the Ricardian equivalence is true is to show that when the government deficit increases, (the) _______ also increase(s).

Accepted Answer

A)  country's imports 
B)  consumption expenditures 
C)  money supply 
D)  private sector saving 
A)  country's imports 
B)  consumption expenditures 
C)  money supply 
D)  private sector saving

Question 16

A budget deficit causes the national debt to fall.

Accepted Answer

A) True 
 B)False

Question 17

From the end of 1997 through 2000, federal government debt as a percentage of GDP:

Accepted Answer

A)  became negative. 
B)  increased. 
C)  remained constant. 
D)  decreased. 
A)  became negative. 
B)  increased. 
C)  remained constant. 
D)  decreased.

Question 18

The reason why the budget deficit decreases during economic expansions is:

Accepted Answer

A)  lower tax revenues 
B)  higher welfare payments. 
C)  higher tax revenues. 
D)  Both A and B are correct. 
A)  lower tax revenues 
B)  higher welfare payments. 
C)  higher tax revenues. 
D)  Both A and B are correct.

Question 19

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income

Question 20

Replacing the personal income tax with a consumption tax would:

Accepted Answer

A)  favor poor and low income individuals. 
B)  increase overall federal revenues from taxation. 
C)  favor all taxpayers equally, regardless of their personal wealth. 
D)  favor wealthy and high income individuals. 
A)  favor poor and low income individuals. 
B)  increase overall federal revenues from taxation. 
C)  favor all taxpayers equally, regardless of their personal wealth. 
D)  favor wealthy and high income individuals.

An example of an automatic stabilizer is:

If the Ricardian Equivalence were true, the effect of an increase in government expenditure

Between 1996 and 1997, the budget deficit in Egypt fell dramatically. Other things being constant, this decline should have made interest rates _ and investment _ .

Which is not a way in which the federal government can finance its expenditure?

Recall Application 3, "Is a VAT in our Future?" to answer the following questions. -Based on what you learned from the application, the VAT is a form of a flat tax.

A tax system that discourages savings hurts long- run growth prospects because:

In 2001, the federal budget turned _ and, as a result of this, it is expected that the ratio of government debt to GDP is expected to _.

Recall Application 2, "Would a Policy Rule Have Prevented the Housing Boom? ," to answer the following questions: -According to the application, which of the following did John Taylor identify as the cause of the housing boom from 2001- 2004?

The nation's total federal debt represents the total of all accumulated deficits minus surpluses over time.

Suppose that the government debt is $100 million at the beginning of the year. If government collects $55 million in taxes and incurs $50 million in expenditures this year, then the government is experiencing a _ and the debt will be _ at the end of the year.

Is it possible for the Fed to reduce the inflation rate with little increase in the unemployment rate? Explain.

If the government experiences a budget deficit that it finances through borrowing, then the country's Debt/GDP ratio will always increase, even if the economy experiences economic growth.

Allowing the Fed to set its own inflation targets,

Some argue that deficits can cause a smaller government because:

One way to prove the Ricardian equivalence is true is to show that when the government deficit increases, (the) _______ also increase(s).

A budget deficit causes the national debt to fall.

From the end of 1997 through 2000, federal government debt as a percentage of GDP:

The reason why the budget deficit decreases during economic expansions is:

Why do many economists advocate a consumption tax rather than an income tax?

Replacing the personal income tax with a consumption tax would:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

International Trade and Public Policy

The World of International Finance

Filters

Exam 17: Macroeconomic Policy Debates

An example of an automatic stabilizer is:

If the Ricardian Equivalence were true, the effect of an increase in government expenditure

Between 1996 and 1997, the budget deficit in Egypt fell dramatically. Other things being constant, this decline should have made interest rates _______ and investment _______ .

Which is not a way in which the federal government can finance its expenditure?

Recall Application 3, "Is a VAT in our Future?" to answer the following questions. -Based on what you learned from the application, the VAT is a form of a flat tax.

A tax system that discourages savings hurts long- run growth prospects because:

In 2001, the federal budget turned _______ and, as a result of this, it is expected that the ratio of government debt to GDP is expected to _______.

Recall Application 2, "Would a Policy Rule Have Prevented the Housing Boom? ," to answer the following questions: -According to the application, which of the following did John Taylor identify as the cause of the housing boom from 2001- 2004?

The nation's total federal debt represents the total of all accumulated deficits minus surpluses over time.

Suppose that the government debt is $100 million at the beginning of the year. If government collects $55 million in taxes and incurs $50 million in expenditures this year, then the government is experiencing a _______ and the debt will be _______ at the end of the year.

Is it possible for the Fed to reduce the inflation rate with little increase in the unemployment rate? Explain.

If the government experiences a budget deficit that it finances through borrowing, then the country's Debt/GDP ratio will always increase, even if the economy experiences economic growth.

Allowing the Fed to set its own inflation targets,

Some argue that deficits can cause a smaller government because:

One way to prove the Ricardian equivalence is true is to show that when the government deficit increases, (the) _______ also increase(s).

A budget deficit causes the national debt to fall.

From the end of 1997 through 2000, federal government debt as a percentage of GDP:

The reason why the budget deficit decreases during economic expansions is:

Why do many economists advocate a consumption tax rather than an income tax?

Replacing the personal income tax with a consumption tax would:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

International Trade and Public Policy

The World of International Finance

Filters

Between 1996 and 1997, the budget deficit in Egypt fell dramatically. Other things being constant, this decline should have made interest rates _ and investment _ .

In 2001, the federal budget turned _ and, as a result of this, it is expected that the ratio of government debt to GDP is expected to _.

Suppose that the government debt is $100 million at the beginning of the year. If government collects $55 million in taxes and incurs $50 million in expenditures this year, then the government is experiencing a _ and the debt will be _ at the end of the year.