Question 1

Which of the following is not considered a legitimate concern of a large public debt?

Accepted Answer

A) bankruptcy of the federal government 
B) disincentives created by higher taxes 
C) crowding out of private investment 
D) increased income inequality 
A) bankruptcy of the federal government 
B) disincentives created by higher taxes 
C) crowding out of private investment 
D) increased income inequality

Question 2

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion, (2) investment = $40 billion, (3) government purchases = $90 billion, and (4) net export = $25 billion.If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with closing the GDP gap here?

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 3

In 2015, about percent of the U.S.public debt was held by people and institutions abroad.

Accepted Answer

A) 41 
B) 15 
C) 26 
D) 34 
A) 41 
B) 15 
C) 26 
D) 34

Question 4

Assume that the economy is in a recession and there is a budget deficit.A strict balanced-budget rule that would require the Federal government to balance its budget during a recession would be

Accepted Answer

A) expansionary and worsen the effects of the recession. 
B) contractionary and worsen the effects of the recession. 
C) contractionary and counter the effects of the recession. 
D) expansionary and counter the effects of the recession. 
A) expansionary and worsen the effects of the recession. 
B) contractionary and worsen the effects of the recession. 
C) contractionary and counter the effects of the recession. 
D) expansionary and counter the effects of the recession.

Question 5

The crowding-out effect works through interest rates, and it tends to

Accepted Answer

A) increase the effectiveness of a tax increase. 
B) decrease the effectiveness of a tax increase. 
C) decrease the effectiveness of an increase in government spending. 
D) increase the effectiveness of an increase in government spending. 
A) increase the effectiveness of a tax increase. 
B) decrease the effectiveness of a tax increase. 
C) decrease the effectiveness of an increase in government spending. 
D) increase the effectiveness of an increase in government spending.

Question 6

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

Accepted Answer

A) fiscal policy was more expansionary. 
B) fiscal policy was more contractionary. 
C) the Federal government is decreasing taxes. 
D) the Federal government is increasing spending. 
A) fiscal policy was more expansionary. 
B) fiscal policy was more contractionary. 
C) the Federal government is decreasing taxes. 
D) the Federal government is increasing spending.

Question 7

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession.(2) Economists reach agreement that the economy is moving into a recession.(3) A tax cut is proposed in Congress.(4) The tax cut is passed by Congress and signed by the president.(5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.The administrative lag of fiscal policy is reflected in events

Accepted Answer

A) 1 and 2. 
B) 2 and 3. 
C) 3 and 4. 
D) 4 and 5. 
A) 1 and 2. 
B) 2 and 3. 
C) 3 and 4. 
D) 4 and 5.

Question 8

In 2015, interest payments on the public debt, as a percentage of GDP, were about

Accepted Answer

A) 2.2 percent. 
B) 22 percent. 
C) 52 percent. 
D) 12 percent. 
A) 2.2 percent. 
B) 22 percent. 
C) 52 percent. 
D) 12 percent.

Question 9

Which of the following best describes the idea of a political business cycle?

Accepted Answer

A) Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. 
B) Fiscal policy will result in alternating budget deficits and surpluses. 
C) Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. 
D) Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle. 
A) Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. 
B) Fiscal policy will result in alternating budget deficits and surpluses. 
C) Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. 
D) Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.

Question 10

Which of the following statements is correct?

Accepted Answer

A) Federal deficits were larger in the early 2000s than in the late 2000s. 
B) Deep tax cuts always expand tax revenues and reduce the public debt. 
C) The public debt has usually declined during wartime. 
D) There is a tendency for the public debt to grow during recessions. 
A) Federal deficits were larger in the early 2000s than in the late 2000s. 
B) Deep tax cuts always expand tax revenues and reduce the public debt. 
C) The public debt has usually declined during wartime. 
D) There is a tendency for the public debt to grow during recessions.

Question 11

In 2015, U.S.individuals and private banks (and other financial institutions) held about what percentage of U.S.federal debt?

Accepted Answer

A) 33 percent 
B) 50 percent 
C) 14 percent 
D) 75 percent 
A) 33 percent 
B) 50 percent 
C) 14 percent 
D) 75 percent

Question 12

When government spending is increased, the amount of the increase in aggregate demand primarily depends on

Accepted Answer

A) the average propensity to consume. 
B) the size of the multiplier. 
C) income taxes. 
D) exchange rates. 
A) the average propensity to consume. 
B) the size of the multiplier. 
C) income taxes. 
D) exchange rates.

Question 13

Due to automatic stabilizers, when the nation's total income rises, 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.

Question 14

One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has

Accepted Answer

A) the power to print money to finance the debt. 
B) a strong military to protect it from creditors. 
C) the capacity to pay off its outstanding debt with gold. 
D) the ability to decrease interest rates and increase investment spending. 
A) the power to print money to finance the debt. 
B) a strong military to protect it from creditors. 
C) the capacity to pay off its outstanding debt with gold. 
D) the ability to decrease interest rates and increase investment spending.

Question 15

The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S.savings bonds.

Accepted Answer

A) True 
 B)False

Question 16

The set of fiscal policies that would be most contractionary would be a(n)

Accepted Answer

A) increase in government spending and taxes. 
B) decrease in government spending and taxes. 
C) increase in government spending and a decrease in taxes. 
D) decrease in government spending and an increase in taxes. 
A) increase in government spending and taxes. 
B) decrease in government spending and taxes. 
C) increase in government spending and a decrease in taxes. 
D) decrease in government spending and an increase in taxes.

Question 17

Transfer payments that increase as GDP falls are a type of automatic stabilizer in the economy.

Accepted Answer

A) True 
 B)False

Question 18

A procyclical fiscal policy, like those of many state and local governments in the United States, tends to

Accepted Answer

A) worsen recessions or inflation. 
B) become contractionary during inflationary periods. 
C) raise government spending or cut taxes during recessions. 
D) increase the budget deficit during recessionary periods. 
A) worsen recessions or inflation. 
B) become contractionary during inflationary periods. 
C) raise government spending or cut taxes during recessions. 
D) increase the budget deficit during recessionary periods.

Question 19

Increases in the federal budget deficit from 2007 to 2009 were caused

Accepted Answer

A) exclusively by the loss of tax revenue due to recession. 
B) exclusively by expansionary fiscal policy, as shown through growth in the cyclically adjusted deficit. 
C) primarily by a combination of recession and expansionary fiscal policy. 
D) primarily by increased outlays to a rapidly growing number of Social Security recipients. 
A) exclusively by the loss of tax revenue due to recession. 
B) exclusively by expansionary fiscal policy, as shown through growth in the cyclically adjusted deficit. 
C) primarily by a combination of recession and expansionary fiscal policy. 
D) primarily by increased outlays to a rapidly growing number of Social Security recipients.

Question 20

The federal government has a large public debt that it finances through borrowing.As a result, real interest rates are higher than otherwise and the volume of private investment spending is lower.This illustrates the

Accepted Answer

A) equation-of-exchange effect. 
B) paradox of thrift. 
C) crowding-out effect. 
D) net export effect. 
A) equation-of-exchange effect. 
B) paradox of thrift. 
C) crowding-out effect. 
D) net export effect.

Exam 33: Fiscal Policy, Deficits, and Debt

Which of the following is not considered a legitimate concern of a large public debt?

In 2015, about percent of the U.S.public debt was held by people and institutions abroad.

Assume that the economy is in a recession and there is a budget deficit.A strict balanced-budget rule that would require the Federal government to balance its budget during a recession would be

The crowding-out effect works through interest rates, and it tends to

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

In 2015, interest payments on the public debt, as a percentage of GDP, were about

Which of the following best describes the idea of a political business cycle?

Which of the following statements is correct?

In 2015, U.S.individuals and private banks (and other financial institutions) held about what percentage of U.S.federal debt?

When government spending is increased, the amount of the increase in aggregate demand primarily depends on

Due to automatic stabilizers, when the nation's total income rises, government transfer spending

One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has

The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S.savings bonds.

The set of fiscal policies that would be most contractionary would be a(n)

Transfer payments that increase as GDP falls are a type of automatic stabilizer in the economy.

A procyclical fiscal policy, like those of many state and local governments in the United States, tends to

Increases in the federal budget deficit from 2007 to 2009 were caused

The federal government has a large public debt that it finances through borrowing.As a result, real interest rates are higher than otherwise and the volume of private investment spending is lower.This illustrates 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

Utility Maximization

Behavioral Economics

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Pure Competition in the Short Run

Pure Competition in the Long Run

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The Demand for Resources

Wage Determination

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Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

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Income Inequality, Poverty, and Discrimination

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An Introduction to Macroeconomics

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Money, Banking, and Financial Institutions

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Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

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The Balance of Payments, Exchange Rates, and Trade Deficits

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