Question 1

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 2

As measured by the cyclically adjusted budget, the U.S. government engaged in a contractionary ﬁscal
policy in 2005 and 2006.

Accepted Answer

A) True 
 B)False

Question 3

In 2018, 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)  17 percent 
D)  75 percent 
A)  33 percent 
B)  50 percent 
C)  17 percent 
D)  75 percent

Question 4

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. If GDP is $400,

Accepted Answer

A)  there will be a budget deﬁcit. 
B)  there will be a budget surplus. 
C)  the budget will be balanced. 
D)  the macroeconomy will necessarily be in equilibrium. 
A)  there will be a budget deﬁcit. 
B)  there will be a budget surplus. 
C)  the budget will be balanced. 
D)  the macroeconomy will necessarily be in equilibrium.

Question 5

More than half of the U.S. public debt is owed to Americans.

Accepted Answer

A) True 
 B)False

Question 6

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 7

$$\begin{array} { | c | c | } 
\hline \text { Gross Domestic Product (GDP) } & \text { Consumption (C) } \
\hline \$ 0 & \$ 40 \
\hline 100 & 120 \
\hline 200 & 200 \
\hline 300 & 280 \
\hline 400 & 360 \
\hline
\end{array}$$ The accompanying table is the before-tax consumption schedule for a closed economy. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, the marginal
Propensity to consume is

Accepted Answer

A)  0.8 before taxes and 0.6 after taxes. 
B)  0.8 both before and after taxes. 
C)  0.6 before taxes and 0.8 after taxes. 
D)  0.8 before taxes and 0.4 after taxes. 
A)  0.8 before taxes and 0.6 after taxes. 
B)  0.8 both before and after taxes. 
C)  0.6 before taxes and 0.8 after taxes. 
D)  0.8 before taxes and 0.4 after taxes.

Question 8

The Social Security program is a retirement system where payments to retirees come from their
previous contributions.

Accepted Answer

A) True 
 B)False

Question 9

The cyclically adjusted budget deﬁcit for the United States

Accepted Answer

A)  rose to −7.6 percent of potential GDP in 2009 but has since declined. 
B)  was zero in 2009, but the cyclical deﬁcit created by the recession was −7.6 percent of potential GDP. 
C)  changed to a surplus in 2009. 
D)  rose to −10.1 percent of potential GDP in 2009 but has since declined. 
A)  rose to −7.6 percent of potential GDP in 2009 but has since declined. 
B)  was zero in 2009, but the cyclical deﬁcit created by the recession was −7.6 percent of potential GDP. 
C)  changed to a surplus in 2009. 
D)  rose to −10.1 percent of potential GDP in 2009 but has since declined.

Question 10

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that
ﬁscal policy has turned more contractionary.

Accepted Answer

A) True 
 B)False

Question 11

Which combination of ﬁscal policy actions would most likely offset each other?

Accepted Answer

A)  increase both taxes and government spending 
B)  decrease taxes and increase government spending 
C)  increase taxes but make no change in government spending 
D)  decrease government spending but make no change in taxes 
A)  increase both taxes and government spending 
B)  decrease taxes and increase government spending 
C)  increase taxes but make no change in government spending 
D)  decrease government spending but make no change in taxes

Question 12

Refer to the diagram. Discretionary ?scal policy designed to expand GDP is illustrated by

Accepted Answer

A)  the shift of curve $T _ { 1 } \text { to } T _ { 2 }$ 
B)  the shift of curve $T _ { 2 } \text { to } T _ { 1 }$ 
C)  a movement from a to c along curve $T _ { 2 }$ 
D)  a movement from d to b along curve $T _ { 1 } .$ 
A)  the shift of curve $T _ { 1 } \text { to } T _ { 2 }$ 
B)  the shift of curve $T _ { 2 } \text { to } T _ { 1 }$ 
C)  a movement from a to c along curve $T _ { 2 }$ 
D)  a movement from d to b along curve $T _ { 1 } .$

Question 13

Accepted Answer

A)  a positive GDP gap. 
B)  a negative GDP gap. 
C)  inﬂation. 
D)  an adverse supply shock. 
A)  a positive GDP gap. 
B)  a negative GDP gap. 
C)  inﬂation. 
D)  an adverse supply shock.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Suppose the federal government had budget deﬁcits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its
Budget surpluses to pay down the public debt. At the end of these four years, the federal government's
Public debt would have

Accepted Answer

A)  increased by $90 billion. 
B)  increased by $20 billion. 
C)  decreased by $70 billion. 
D)  decreased by $20 billion. 
A)  increased by $90 billion. 
B)  increased by $20 billion. 
C)  decreased by $70 billion. 
D)  decreased by $20 billion.

Question 17

The American Recovery and Reinvestment Act of 2009

Accepted Answer

A)  created a $700 billion rescue package for ﬁnancial institutions. 
B)  cut taxes by $152 billion, distributed primarily as rebate checks to taxpayers. 
C)  implemented a $787 billion package of tax cuts and government expenditure increases. 
D)  substantially lowered interest rates in an attempt to stimulate investment spending. 
A)  created a $700 billion rescue package for ﬁnancial institutions. 
B)  cut taxes by $152 billion, distributed primarily as rebate checks to taxpayers. 
C)  implemented a $787 billion package of tax cuts and government expenditure increases. 
D)  substantially lowered interest rates in an attempt to stimulate investment spending.

Question 18

The crowding-out effect suggests that

Accepted Answer

A)  tax increases are paid primarily out of saving and therefore are not an effective ﬁscal device. 
B)  government borrowing to ﬁnance the public debt increases the real interest rate and reduces private investment. 
C)  it is very diﬃcult to have excessive aggregate spending in a capitalist economy. 
D)  consumer and investment spending always vary inversely. 
A)  tax increases are paid primarily out of saving and therefore are not an effective ﬁscal device. 
B)  government borrowing to ﬁnance the public debt increases the real interest rate and reduces private investment. 
C)  it is very diﬃcult to have excessive aggregate spending in a capitalist economy. 
D)  consumer and investment spending always vary inversely.

Question 19

Discretionary ﬁscal policy will likely cause budget

Accepted Answer

A)  surpluses during recessions and deﬁcits during periods of demand-pull inﬂation. 
B)  deﬁcits during recessions and surpluses during periods of demand-pull inﬂation. 
C)  surpluses during both recessions and periods of demand-pull inﬂation. 
D)  deﬁcits during both recessions and periods of demand-pull inﬂation. 
A)  surpluses during recessions and deﬁcits during periods of demand-pull inﬂation. 
B)  deﬁcits during recessions and surpluses during periods of demand-pull inﬂation. 
C)  surpluses during both recessions and periods of demand-pull inﬂation. 
D)  deﬁcits during both recessions and periods of demand-pull inﬂation.

Question 20

Refer to the diagram, where T is tax revenues and G is government expenditures. All ﬁgures are in billions of dollars. If the full-employment and actual GDP are each $400 billion, government can balance
Its cyclically adjusted budget by

Accepted Answer

A)  increasing T by $40 billion. 
B)  reducing G by $20 billion. 
C)  reducing T by $20 billion. 
D)  increasing T by $10 billion and reducing G by $20 billion. 
A)  increasing T by $40 billion. 
B)  reducing G by $20 billion. 
C)  reducing T by $20 billion. 
D)  increasing T by $10 billion and reducing G by $20 billion.

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

As measured by the cyclically adjusted budget, the U.S. government engaged in a contractionary ﬁscal policy in 2005 and 2006.

In 2018, U.S. individuals and private banks (and other ﬁnancial institutions) held about what percentage of U.S. federal debt?

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. If GDP is $400,

More than half of the U.S. public debt is owed to Americans.

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

The Social Security program is a retirement system where payments to retirees come from their previous contributions.

The cyclically adjusted budget deﬁcit for the United States

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that ﬁscal policy has turned more contractionary.

Which combination of ﬁscal policy actions would most likely offset each other?

Refer to the diagram. Discretionary ?scal policy designed to expand GDP is illustrated by

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

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

The American Recovery and Reinvestment Act of 2009

The crowding-out effect suggests that

Discretionary ﬁscal policy will likely cause budget

Refer to the diagram, where T is tax revenues and G is government expenditures. All ﬁgures are in billions of dollars. If the full-employment and actual GDP are each $400 billion, government can balance Its cyclically adjusted budget by

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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Exam 13: Fiscal Policy, Deficits, and Debt

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

As measured by the cyclically adjusted budget, the U.S. government engaged in a contractionary ﬁscal policy in 2005 and 2006.

In 2018, U.S. individuals and private banks (and other ﬁnancial institutions) held about what percentage of U.S. federal debt?

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. If GDP is $400,

More than half of the U.S. public debt is owed to Americans.

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

The Social Security program is a retirement system where payments to retirees come from their previous contributions.

The cyclically adjusted budget deﬁcit for the United States

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that ﬁscal policy has turned more contractionary.

Which combination of ﬁscal policy actions would most likely offset each other?

Refer to the diagram. Discretionary ?scal policy designed to expand GDP is illustrated by

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

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

The American Recovery and Reinvestment Act of 2009

The crowding-out effect suggests that

Discretionary ﬁscal policy will likely cause budget

Refer to the diagram, where T is tax revenues and G is government expenditures. All ﬁgures are in billions of dollars. If the full-employment and actual GDP are each $400 billion, government can balance Its cyclically adjusted budget by

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters