Question 1

The so-called negative taxes are better known as

Accepted Answer

A) government spending. 
B) transfer payments. 
C) built-in stabilizers. 
D) fiscal multipliers. 
A) government spending. 
B) transfer payments. 
C) built-in stabilizers. 
D) fiscal multipliers.

Question 2

The cyclically adjusted surplus as a percentage of GDP is 1 percent in Year 1.This surplus becomes a deficit of 2 percent of GDP in Year 2.It can be concluded that from Year 1 to Year 2,

Accepted Answer

A) fiscal policy turned more expansionary. 
B) fiscal policy turned more contractionary. 
C) GDP increased. 
D) GDP decreased. 
A) fiscal policy turned more expansionary. 
B) fiscal policy turned more contractionary. 
C) GDP increased. 
D) GDP decreased.

Question 3

The group of three economists appointed by the president to provide fiscal policy recommendations is the

Accepted Answer

A) Council of Economic Advisers. 
B) Joint Economic Committee. 
C) Bureau of Economic Analysis. 
D) Federal Reserve Board of Governors. 
A) Council of Economic Advisers. 
B) Joint Economic Committee. 
C) Bureau of Economic Analysis. 
D) Federal Reserve Board of Governors.

Question 4

If taxation becomes more progressive, the built-in stability in the economy will decrease.

Accepted Answer

A) True 
 B)False

Question 5

The intent of contractionary fiscal policy is to

Accepted Answer

A) increase aggregate demand. 
B) decrease aggregate demand. 
C) increase aggregate supply. 
D) decrease aggregate supply. 
A) increase aggregate demand. 
B) decrease aggregate demand. 
C) increase aggregate supply. 
D) decrease aggregate supply.

Question 6

The "stimulus package" that the government implemented in response to the Great Recession of 2007-09 made the cyclically adjusted budget of the U.S.have a very large positive balance in that time period.

Accepted Answer

A) True 
 B)False

Question 7

Through the start of 2009, Social Security revenues exceeded payouts, and the excess inflow was used to buy

Accepted Answer

A) public lands. 
B) gold certificates. 
C) foreign securities. 
D) Treasury securities. 
A) public lands. 
B) gold certificates. 
C) foreign securities. 
D) Treasury securities.

Question 8

An economist who favors smaller government would recommend

Accepted Answer

A) tax cuts during recession and reductions in government spending during inflation. 
B) tax increases during recession and tax cuts during inflation. 
C) tax cuts during recession and tax increases during inflation. 
D) increases in government spending during recession and tax increases during inflation. 
A) tax cuts during recession and reductions in government spending during inflation. 
B) tax increases during recession and tax cuts during inflation. 
C) tax cuts during recession and tax increases during inflation. 
D) increases in government spending during recession and tax increases during inflation.

Question 9

Which of the following is not an important problem associated with the public debt?

Accepted Answer

A) Payments of interest on the debt lead to greater income inequality. 
B) Interest payments on the debt tend to reduce economic incentives to work and invest. 
C) Government borrowing to finance the debt may lead to too much private investment. 
D) Payment of interest on the debt held by foreigners sends real resources abroad. 
A) Payments of interest on the debt lead to greater income inequality. 
B) Interest payments on the debt tend to reduce economic incentives to work and invest. 
C) Government borrowing to finance the debt may lead to too much private investment. 
D) Payment of interest on the debt held by foreigners sends real resources abroad.

Question 10

One timing problem in using fiscal policy to counter a recession is the "administrative lag" that occurs between the

Accepted Answer

A) start of the recession and the time it takes to recognize that the recession has started. 
B) start of a predicted recession and the actual start of the recession. 
C) time fiscal action is taken and the time that the action has its effect on the economy. 
D) time the need for the fiscal action is recognized and the time that the action is taken. 
A) start of the recession and the time it takes to recognize that the recession has started. 
B) start of a predicted recession and the actual start of the recession. 
C) time fiscal action is taken and the time that the action has its effect on the economy. 
D) time the need for the fiscal action is recognized and the time that the action is taken.

Question 11

Recessions have contributed to the public debt by

Accepted Answer

A) reducing national income and therefore tax revenues. 
B) increasing real interest rates. 
C) increasing the international value of the dollar. 
D) increasing national saving. 
A) reducing national income and therefore tax revenues. 
B) increasing real interest rates. 
C) increasing the international value of the dollar. 
D) increasing national saving.

Question 12

If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by

Accepted Answer

A) increasing government spending by $25 billion. 
B) increasing government spending by $80 billion. 
C) decreasing taxes by $25 billion. 
D) decreasing taxes by $100 billion. 
A) increasing government spending by $25 billion. 
B) increasing government spending by $80 billion. 
C) decreasing taxes by $25 billion. 
D) decreasing taxes by $100 billion.

Question 13

Which would tend to reduce the crowding-out effect that occurs when the Federal government increases its borrowing to finance a deficit?

Accepted Answer

A) The economy is operating at full employment. 
B) The economy is operating at less than full employment. 
C) The expenditures fail to contribute to the development of human capital. 
D) The deficit financing reduces the profit expectations of business firms. 
A) The economy is operating at full employment. 
B) The economy is operating at less than full employment. 
C) The expenditures fail to contribute to the development of human capital. 
D) The deficit financing reduces the profit expectations of business firms.

Question 14

The immediate primary cause of the swing from federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was

Accepted Answer

A) the tax cuts of 2001. 
B) spending increases relating to the wars in Afghanistan and Iraq. 
C) the recession of 2001. 
D) the acceleration of inflation in 2001 and 2002. 
A) the tax cuts of 2001. 
B) spending increases relating to the wars in Afghanistan and Iraq. 
C) the recession of 2001. 
D) the acceleration of inflation in 2001 and 2002.

Question 15

The Great Recession of 2007-09 and the consequent policy response made the

Accepted Answer

A) actual budget deficit become very close to the cyclically adjusted deficit during that period. 
B) actual budget deficit shrink during that period. 
C) cyclically adjusted deficit grow during that period. 
D) cyclically adjusted budget balance turn positive during that period. 
A) actual budget deficit become very close to the cyclically adjusted deficit during that period. 
B) actual budget deficit shrink during that period. 
C) cyclically adjusted deficit grow during that period. 
D) cyclically adjusted budget balance turn positive during that period.

Question 16

Suppose that the economy is in the midst of a recession.Which of the following policies would most likely end the recession and stimulate output growth?

Accepted Answer

A) A congressional proposal to incur a federal surplus to be used for the retirement of public debt. 
B) Reductions in agricultural subsidies and veterans' benefits. 
C) Postponement of a highway construction program. 
D) Reductions in federal tax rates on personal and corporate income. 
A) A congressional proposal to incur a federal surplus to be used for the retirement of public debt. 
B) Reductions in agricultural subsidies and veterans' benefits. 
C) Postponement of a highway construction program. 
D) Reductions in federal tax rates on personal and corporate income.

Question 17

When changes in taxes and government spending occur in the economy without explicit action by Congress, such policy is called fiscal policy.

Accepted Answer

A) cyclical 
B) implicit 
C) discretionary 
D) nondiscretionary 
A) cyclical 
B) implicit 
C) discretionary 
D) nondiscretionary

Question 18

The concept of a "political business cycle" implies a misuse of fiscal policy making it a source of economic instability.

Accepted Answer

A) True 
 B)False

Question 19

If the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by

Accepted Answer

A) reducing government expenditures by $125 billion. 
B) reducing government expenditures by $20 billion. 
C) increasing taxes by $50 billion. 
D) increasing taxes by $250 billion. 
A) reducing government expenditures by $125 billion. 
B) reducing government expenditures by $20 billion. 
C) increasing taxes by $50 billion. 
D) increasing taxes by $250 billion.

Question 20

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the

Accepted Answer

A) economy's MPS is small. 
B) economy's MPS is large. 
C) economy's MPC is small. 
D) unemployment rate is low. 
A) economy's MPS is small. 
B) economy's MPS is large. 
C) economy's MPC is small. 
D) unemployment rate is low.

Exam 33: Fiscal Policy, Deficits, and Debt

The so-called negative taxes are better known as

The cyclically adjusted surplus as a percentage of GDP is 1 percent in Year 1.This surplus becomes a deficit of 2 percent of GDP in Year 2.It can be concluded that from Year 1 to Year 2,

The group of three economists appointed by the president to provide fiscal policy recommendations is the

If taxation becomes more progressive, the built-in stability in the economy will decrease.

The intent of contractionary fiscal policy is to

The "stimulus package" that the government implemented in response to the Great Recession of 2007-09 made the cyclically adjusted budget of the U.S.have a very large positive balance in that time period.

Through the start of 2009, Social Security revenues exceeded payouts, and the excess inflow was used to buy

An economist who favors smaller government would recommend

Which of the following is not an important problem associated with the public debt?

One timing problem in using fiscal policy to counter a recession is the "administrative lag" that occurs between the

Recessions have contributed to the public debt by

If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by

Which would tend to reduce the crowding-out effect that occurs when the Federal government increases its borrowing to finance a deficit?

The immediate primary cause of the swing from federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was

The Great Recession of 2007-09 and the consequent policy response made the

Suppose that the economy is in the midst of a recession.Which of the following policies would most likely end the recession and stimulate output growth?

When changes in taxes and government spending occur in the economy without explicit action by Congress, such policy is called fiscal policy.

The concept of a "political business cycle" implies a misuse of fiscal policy making it a source of economic instability.

If the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

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Extending the Analysis of Aggregate Supply

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