Question 1

If the budget deﬁcit becomes smaller, then it will cause the public debt to also become smaller.

Accepted Answer

A) True 
 B)False

Question 2

The impact of an expansionary ﬁscal policy may be strengthened if it crowds out some private
investment spending.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following ﬁscal policy actions is most likely to increase aggregate supply?

Accepted Answer

A)  an increase in personal income tax rates 
B)  a reduction in interest rates that encourages consumers to purchase more durable goods 
C)  an increase in transfer payments to unemployed workers 
D)  an increase in government spending on infrastructure that increases private sector productivity 
A)  an increase in personal income tax rates 
B)  a reduction in interest rates that encourages consumers to purchase more durable goods 
C)  an increase in transfer payments to unemployed workers 
D)  an increase in government spending on infrastructure that increases private sector productivity

Question 4

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

Accepted Answer

A) True 
 B)False

Question 5

The actual budget may be in deﬁcit while the cyclically adjusted budget is in surplus.

Accepted Answer

A) True 
 B)False

Question 6

(Last Word) What is the long-run ﬁnancial problem for Social Security?

Accepted Answer

The long-run ﬁnancial problem for Social

Question 7

Accepted Answer

A)  cyclically adjusted budget surplus. 
B)  cyclically adjusted budget deﬁcit. 
C)  actual budget deﬁcit. 
D)  actual budget surplus. 
A)  cyclically adjusted budget surplus. 
B)  cyclically adjusted budget deﬁcit. 
C)  actual budget deﬁcit. 
D)  actual budget surplus.

Question 8

A federal budget deﬁcit is ﬁnanced by the

Accepted Answer

A)  government purchase of Treasury securities. 
B)  government issuance or sale of Treasury securities. 
C)  nation's exports. 
D)  private sector's investment spending. 
A)  government purchase of Treasury securities. 
B)  government issuance or sale of Treasury securities. 
C)  nation's exports. 
D)  private sector's investment spending.

Question 9

If the economy is to have signiﬁcant built-in stability, then when real GDP increases, the tax revenues should

Accepted Answer

A)  fall proportionately more than the change in GDP. 
B)  fall proportionately less than the change in GDP. 
C)  rise proportionately more than the change in GDP. 
D)  rise proportionately less than the change in GDP. 
A)  fall proportionately more than the change in GDP. 
B)  fall proportionately less than the change in GDP. 
C)  rise proportionately more than the change in GDP. 
D)  rise proportionately less than the change in GDP.

Question 10

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government
Purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the
Government should

Accepted Answer

A)  encourage personal saving by increasing the interest rate on government bonds. 
B)  decrease government expenditures. 
C)  reduce tax rates and/or increase government spending. 
D)  discourage private investment by increasing corporate income taxes. 
A)  encourage personal saving by increasing the interest rate on government bonds. 
B)  decrease government expenditures. 
C)  reduce tax rates and/or increase government spending. 
D)  discourage private investment by increasing corporate income taxes.

Question 11

The economy starts out with a balanced federal budget. If the government then implements expansionary ﬁscal policy, then there will be a

Accepted Answer

A)  trade deﬁcit. 
B)  trade surplus. 
C)  budget deﬁcit. 
D)  budget surplus. 
A)  trade deﬁcit. 
B)  trade surplus. 
C)  budget deﬁcit. 
D)  budget surplus.

Question 12

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

Accepted Answer

A) True 
 B)False

Question 13

An increase in the public debt and its subsequent repayment will tend to

Accepted Answer

A)  mildly reduce the income inequality in the United States. 
B)  mildly increase the income inequality in the United States. 
C)  have no impact on the income distribution in the United States. 
D)  make the income distribution more equitable in the United States. 
A)  mildly reduce the income inequality in the United States. 
B)  mildly increase the income inequality in the United States. 
C)  have no impact on the income distribution in the United States. 
D)  make the income distribution more equitable in the United States.

Question 14

Suppose the price level is ﬁxed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should

Accepted Answer

A)  increase government expenditures by $80 billion. 
B)  reduce government expenditures by $40 billion. 
C)  reduce taxes by $40 billion. 
D)  reduce taxes by $80 billion. 
A)  increase government expenditures by $80 billion. 
B)  reduce government expenditures by $40 billion. 
C)  reduce taxes by $40 billion. 
D)  reduce taxes by $80 billion.

Question 15

Accepted Answer

A)  do nothing since the economy appears to be achieving full-employment real output. 
B)  increase taxes and reduce government spending to shift the aggregate demand curve rightward from AD
$A D _ { 2 } \text { to } A D _ { 3 }$ 
C)  increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. 
D)  reduce taxes and increase government spending to shift the aggregate demand curve from
$A D _ { 2 } \text { to } A D _ { 1 }$ 
A)  do nothing since the economy appears to be achieving full-employment real output. 
B)  increase taxes and reduce government spending to shift the aggregate demand curve rightward from AD
$A D _ { 2 } \text { to } A D _ { 3 }$ 
C)  increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. 
D)  reduce taxes and increase government spending to shift the aggregate demand curve from
$A D _ { 2 } \text { to } A D _ { 1 }$

Question 16

Since 2009, when actual budget deﬁcits were nearly 10 percent of GDP,

Accepted Answer

A)  ﬁscal policy has become contractionary. 
B)  the deﬁcits as a percentage of GDP have fallen, but ﬁscal policy has remained expansionary. 
C)  deﬁcits as a percentage of GDP have continued to rise. 
D)  deﬁcits as a percentage of GDP have remained constant but risen in dollar amounts. 
A)  ﬁscal policy has become contractionary. 
B)  the deﬁcits as a percentage of GDP have fallen, but ﬁscal policy has remained expansionary. 
C)  deﬁcits as a percentage of GDP have continued to rise. 
D)  deﬁcits as a percentage of GDP have remained constant but risen in dollar amounts.

Question 17

When current government expenditures equal current tax revenues and the economy is achieving full employment,

Accepted Answer

A)  the cyclically adjusted budget has neither a deﬁcit nor a surplus. 
B)  the cyclically adjusted budget may have either a deﬁcit or a surplus. 
C)  ﬁscal policy is contractionary. 
D)  nominal GDP and real GDP are equal. 
A)  the cyclically adjusted budget has neither a deﬁcit nor a surplus. 
B)  the cyclically adjusted budget may have either a deﬁcit or a surplus. 
C)  ﬁscal policy is contractionary. 
D)  nominal GDP and real GDP are equal.

Question 18

Discretionary ﬁscal policy is so named because it

Accepted Answer

A)  is undertaken at the option of the nation's central bank. 
B)  occurs automatically as the nation's level of GDP changes. 
C)  involves speciﬁc changes in taxes and government spending undertaken expressly for stabilization at the option of Congress. 
D)  is invoked secretly by the Council of Economic Advisers. 
A)  is undertaken at the option of the nation's central bank. 
B)  occurs automatically as the nation's level of GDP changes. 
C)  involves speciﬁc changes in taxes and government spending undertaken expressly for stabilization at the option of Congress. 
D)  is invoked secretly by the Council of Economic Advisers.

Question 19

Refer to the graph. A budget surplus would be associated with GDP level

Accepted Answer

A)  H. 
B)  J. 
C)  K. 
D)  L. 
A)  H. 
B)  J. 
C)  K. 
D)  L.

Question 20

The portion of the public debt owed to foreigners does not represent any real economic burden to
Americans because we received money from foreigners when we incurred the debt.

Accepted Answer

A) True 
 B)False

If the budget deﬁcit becomes smaller, then it will cause the public debt to also become smaller.

The impact of an expansionary ﬁscal policy may be strengthened if it crowds out some private investment spending.

Which of the following ﬁscal policy actions is most likely to increase aggregate supply?

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

The actual budget may be in deﬁcit while the cyclically adjusted budget is in surplus.

(Last Word) What is the long-run ﬁnancial problem for Social Security?

A federal budget deﬁcit is ﬁnanced by the

If the economy is to have signiﬁcant built-in stability, then when real GDP increases, the tax revenues should

The economy starts out with a balanced federal budget. If the government then implements expansionary ﬁscal policy, then there will be a

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

An increase in the public debt and its subsequent repayment will tend to

Suppose the price level is ﬁxed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should

Since 2009, when actual budget deﬁcits were nearly 10 percent of GDP,

When current government expenditures equal current tax revenues and the economy is achieving full employment,

Discretionary ﬁscal policy is so named because it

Refer to the graph. A budget surplus would be associated with GDP level

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

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

Exam 13: Fiscal Policy, Deficits, and Debt

If the budget deﬁcit becomes smaller, then it will cause the public debt to also become smaller.

The impact of an expansionary ﬁscal policy may be strengthened if it crowds out some private investment spending.

Which of the following ﬁscal policy actions is most likely to increase aggregate supply?

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

The actual budget may be in deﬁcit while the cyclically adjusted budget is in surplus.

(Last Word) What is the long-run ﬁnancial problem for Social Security?

A federal budget deﬁcit is ﬁnanced by the

If the economy is to have signiﬁcant built-in stability, then when real GDP increases, the tax revenues should

The economy starts out with a balanced federal budget. If the government then implements expansionary ﬁscal policy, then there will be a

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

An increase in the public debt and its subsequent repayment will tend to

Suppose the price level is ﬁxed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should

Since 2009, when actual budget deﬁcits were nearly 10 percent of GDP,

When current government expenditures equal current tax revenues and the economy is achieving full employment,

Discretionary ﬁscal policy is so named because it

Refer to the graph. A budget surplus would be associated with GDP level

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

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