Question 1

The purpose of fiscal policy should be to

Accepted Answer

A) balance the budget to be fiscally responsible. 
B) balance aggregate supply and aggregate demand. 
C) keep taxes low to keep voters happy. 
D) minimize government spending to avoid wasting money. 
A) balance the budget to be fiscally responsible. 
B) balance aggregate supply and aggregate demand. 
C) keep taxes low to keep voters happy. 
D) minimize government spending to avoid wasting money.

Question 2

Proper inflation accounting is necessary to measure the size of the real deficit because

Accepted Answer

A) as a lender, the government gains from inflation. 
B) otherwise, the deficit is understated in inflationary times. 
C) the government is a borrower that pays back dollars of less real value in inflationary times. 
D) interest payments tend to fall in inflationary times. 
A) as a lender, the government gains from inflation. 
B) otherwise, the deficit is understated in inflationary times. 
C) the government is a borrower that pays back dollars of less real value in inflationary times. 
D) interest payments tend to fall in inflationary times.

Question 3

The fallacy in the strict crowding-out argument comes from supposing that

Accepted Answer

A) the Federal Reserve always accommodates the U.S.Treasury in its financing of the deficit. 
B) corporations always outbid small businesses for government contracts. 
C) the economy's flow of saving is fixed. 
D) investors will spend more when G increases. 
A) the Federal Reserve always accommodates the U.S.Treasury in its financing of the deficit. 
B) corporations always outbid small businesses for government contracts. 
C) the economy's flow of saving is fixed. 
D) investors will spend more when G increases.

Question 4

Budget surplus is the amount by which the government's receipts exceed expenditures during a specified period of time, usually a year.

Accepted Answer

A) True 
 B)False

Question 5

Inflation accounting for the debt argues which of the following?

Accepted Answer

A) The change in the value of the debt when inflation occurs complicates income tax codes and is the reason for the tax changes of 2003. 
B) The portion of interest payments that compensate lenders for inflation should be considered repayment of debt rather than interest expense. 
C) The debt represents an inflationary problem, and grows more rapidly when people fear inflation. 
D) The portion of the deficit dedicated to repayment of interest on the debt should not be considered part of the deficit, because it is a transfer. 
A) The change in the value of the debt when inflation occurs complicates income tax codes and is the reason for the tax changes of 2003. 
B) The portion of interest payments that compensate lenders for inflation should be considered repayment of debt rather than interest expense. 
C) The debt represents an inflationary problem, and grows more rapidly when people fear inflation. 
D) The portion of the deficit dedicated to repayment of interest on the debt should not be considered part of the deficit, because it is a transfer.

Question 6

What happens typically to a budget deficit during an economic recovery?

Accepted Answer

A) It decreases because of tax changes. 
B) It increases because of spending decreases. 
C) It decreases automatically. 
D) It increases automatically. 
A) It decreases because of tax changes. 
B) It increases because of spending decreases. 
C) It decreases automatically. 
D) It increases automatically.

Question 7

By 2007, the deficit

Accepted Answer

A) was out of control and increased substantially soon thereafter. 
B) seemed under control but increased substantially soon thereafter. 
C) was out of control but decreased substantially soon thereafter. 
D) seemed under control and decreased substantially soon thereafter. 
A) was out of control and increased substantially soon thereafter. 
B) seemed under control but increased substantially soon thereafter. 
C) was out of control but decreased substantially soon thereafter. 
D) seemed under control and decreased substantially soon thereafter.

Question 8

Large deficits can retard economic growth.

Accepted Answer

A) True 
 B)False

Question 9

A federal budget deficit places a genuine burden on future generations when the

Accepted Answer

A) crowding-out effect is stronger than the crowding-in effect. 
B) crowding-in effect is stronger than the crowding-out effect. 
C) crowding-out and crowding-in effects work in opposite directions. 
D) crowding-out and crowding-in effects operate in the same direction. 
A) crowding-out effect is stronger than the crowding-in effect. 
B) crowding-in effect is stronger than the crowding-out effect. 
C) crowding-out and crowding-in effects work in opposite directions. 
D) crowding-out and crowding-in effects operate in the same direction.

Question 10

Many economists believe that if fiscal policy turns contractionary to reduce the deficit,

Accepted Answer

A) monetary policy can turn expansionary to counteract the effects on aggregate demand. 
B) monetary policy must be contractionary to reinforce the good effects of contractionary fiscal policy. 
C) foreign investment in the United States must be encouraged. 
D) taxes on the earnings from stock market gains should be increased. 
A) monetary policy can turn expansionary to counteract the effects on aggregate demand. 
B) monetary policy must be contractionary to reinforce the good effects of contractionary fiscal policy. 
C) foreign investment in the United States must be encouraged. 
D) taxes on the earnings from stock market gains should be increased.

Question 11

Economists who argue in favor of rapid deficit reduction claim that deficit reduction will

Accepted Answer

A) reduce crowding in, reduce interest rates, and increase AS. 
B) stimulate AD and productivity. 
C) trigger crowding in, increase investment, and increase AS. 
D) reduce crowding out, increase investment, and increase AS. 
A) reduce crowding in, reduce interest rates, and increase AS. 
B) stimulate AD and productivity. 
C) trigger crowding in, increase investment, and increase AS. 
D) reduce crowding out, increase investment, and increase AS.

Question 12

The Troubled Asset Relief Program (TARP) totaled ____ and the fiscal stimulus package of 2009 totaled ____.

Accepted Answer

A) $1.4 trillion; $800 billion 
B) $1.4 trillion; $700 billion 
C) $700 billion; $800 billion 
D) $700 billion; $1.4 trillion 
A) $1.4 trillion; $800 billion 
B) $1.4 trillion; $700 billion 
C) $700 billion; $800 billion 
D) $700 billion; $1.4 trillion

Question 13

Crowding out occurs when deficit spending by the government forces private investment spending to contract.

Accepted Answer

A) True 
 B)False

Question 14

If the national debt is owed entirely to U.S.citizens,

Accepted Answer

A) paying off the debt will necessarily stimulate growth. 
B) future interest payments on the debt are not a burden to the nation as a whole. 
C) future economic growth will necessarily be slowed. 
D) the debt constitutes a burden to these citizens. 
A) paying off the debt will necessarily stimulate growth. 
B) future interest payments on the debt are not a burden to the nation as a whole. 
C) future economic growth will necessarily be slowed. 
D) the debt constitutes a burden to these citizens.

Question 15

If in fiscal year 2015, the federal government receives $2.2 trillion in revenues and spends $3.5 trillion for goods and services, the national debt will

Accepted Answer

A) increase by $2.2 trillion. 
B) increase by $1.3 trillion. 
C) decrease by $1.3 trillion. 
D) decrease by $2.2 trillion. 
A) increase by $2.2 trillion. 
B) increase by $1.3 trillion. 
C) decrease by $1.3 trillion. 
D) decrease by $2.2 trillion.

Question 16

"Budget deficits are inflationary." The truth of this statement depends on

Accepted Answer

A) aggregate demand in the economy. 
B) the shape of the aggregate supply curve. 
C) the size of the national debt. 
D) existing debt as a percentage of GDP. 
A) aggregate demand in the economy. 
B) the shape of the aggregate supply curve. 
C) the size of the national debt. 
D) existing debt as a percentage of GDP.

Question 17

The statement that "repaying our enormous national debt will ruin the nation" is

Accepted Answer

A) true, because taxes will have to go up by such large amounts that American citizens will have very little income to live on. 
B) true, because most of our national debt is owed to foreigners. 
C) false, because the government will take emergency measures to prevent national bankruptcy. 
D) false, because each time the principal on the debt comes due, the U.S.Treasury rolls it over by issuing more debt. 
A) true, because taxes will have to go up by such large amounts that American citizens will have very little income to live on. 
B) true, because most of our national debt is owed to foreigners. 
C) false, because the government will take emergency measures to prevent national bankruptcy. 
D) false, because each time the principal on the debt comes due, the U.S.Treasury rolls it over by issuing more debt.

Question 18

The national debt is defined as the total

Accepted Answer

A) amount that U.S.citizens owe to foreigners. 
B) value that U.S.citizens borrow from foreigners during any time period. 
C) value of government's indebtedness at any moment in time. 
D) amount by which government's expenditures exceed receipts during any time period. 
A) amount that U.S.citizens owe to foreigners. 
B) value that U.S.citizens borrow from foreigners during any time period. 
C) value of government's indebtedness at any moment in time. 
D) amount by which government's expenditures exceed receipts during any time period.

Question 19

For which of the following time periods did the United States have a budget surplus?

Accepted Answer

A) 1990-1993 
B) 1998-2001 
C) 2003-2006 
D) The United States did not have a surplus in any of these time periods. 
A) 1990-1993 
B) 1998-2001 
C) 2003-2006 
D) The United States did not have a surplus in any of these time periods.

Question 20

The budget deficit

Accepted Answer

A) is the value of the government's indebtedness at a moment in time. 
B) was $13.5 trillion in fiscal 2014. 
C) is the amount by which the government's expenditures exceed receipts during a specific time period. 
D) all of the above are correct. 
A) is the value of the government's indebtedness at a moment in time. 
B) was $13.5 trillion in fiscal 2014. 
C) is the amount by which the government's expenditures exceed receipts during a specific time period. 
D) all of the above are correct.

Exam 32: Budget Deficits in the Short and Long Run

The purpose of fiscal policy should be to

Proper inflation accounting is necessary to measure the size of the real deficit because

The fallacy in the strict crowding-out argument comes from supposing that

Budget surplus is the amount by which the government's receipts exceed expenditures during a specified period of time, usually a year.

Inflation accounting for the debt argues which of the following?

What happens typically to a budget deficit during an economic recovery?

By 2007, the deficit

Large deficits can retard economic growth.

A federal budget deficit places a genuine burden on future generations when the

Many economists believe that if fiscal policy turns contractionary to reduce the deficit,

Economists who argue in favor of rapid deficit reduction claim that deficit reduction will

The Troubled Asset Relief Program (TARP) totaled ____ and the fiscal stimulus package of 2009 totaled ____.

Crowding out occurs when deficit spending by the government forces private investment spending to contract.

If the national debt is owed entirely to U.S.citizens,

If in fiscal year 2015, the federal government receives $2.2 trillion in revenues and spends $3.5 trillion for goods and services, the national debt will

"Budget deficits are inflationary." The truth of this statement depends on

The statement that "repaying our enormous national debt will ruin the nation" is

The national debt is defined as the total

For which of the following time periods did the United States have a budget surplus?

The budget deficit

What Is Economics

The Economony: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Useconomy

Filters

The Troubled Asset Relief Program (TARP) totaled and the fiscal stimulus package of 2009 totaled .