Question 1

The lag between the time that the need for ﬁscal action is recognized and the time action is actually taken is referred to as the

Accepted Answer

A)  crowding-out lag. 
B)  recognition lag. 
C)  operational lag. 
D)  administrative lag. 
A)  crowding-out lag. 
B)  recognition lag. 
C)  operational lag. 
D)  administrative lag.

Question 2

The Medicare trust fund is expected, if current ﬂows continue, to be depleted by 2024.

Accepted Answer

A) True 
 B)False

Question 3

Incurring an internal debt to ﬁnance a war like World War II does not pass the true cost of the war on to future generations because

Accepted Answer

A)  the opportunity cost of wartime expenditures was borne by the generation that lived during the war. 
B)  the Federal government can shift expenditures from military goods to the production of other public goods. 
C)  the Federal government has the power to levy taxes to pay its debts. 
D)  wartime inﬂation reduces the relative size of the public debt. 
A)  the opportunity cost of wartime expenditures was borne by the generation that lived during the war. 
B)  the Federal government can shift expenditures from military goods to the production of other public goods. 
C)  the Federal government has the power to levy taxes to pay its debts. 
D)  wartime inﬂation reduces the relative size of the public debt.

Question 4

When the Federal government takes budgetary action to stimulate the economy or rein in inﬂation, such policy is

Accepted Answer

A)  active monetary policy. 
B)  automatic ﬁscal policy. 
C)  discretionary ﬁscal policy. 
D)  active federal policy. 
A)  active monetary policy. 
B)  automatic ﬁscal policy. 
C)  discretionary ﬁscal policy. 
D)  active federal policy.

Question 5

The bursting of the dot-com bubble in 2000, along with the terrorist attacks in 2001, made the U.S. government

Accepted Answer

A)  decrease its cyclically adjusted budget deﬁcit from 2000 to 2002. 
B)  increase its cyclically adjusted budget surplus from 2000 to 2002. 
C)  increase its cyclically adjusted budget deﬁcit from 2000 to 2002. 
D)  increase its actual budget surplus from 2000 to 2002. 
A)  decrease its cyclically adjusted budget deﬁcit from 2000 to 2002. 
B)  increase its cyclically adjusted budget surplus from 2000 to 2002. 
C)  increase its cyclically adjusted budget deﬁcit from 2000 to 2002. 
D)  increase its actual budget surplus from 2000 to 2002.

Question 6

From 1995 to 2001, the U.S. public debt relative to GDP

Accepted Answer

A)  increased, and fell since then. 
B)  decreased, and increased since then. 
C)  increased steadily and continued to increase since then. 
D)  was roughly constant, but has increased since. 
A)  increased, and fell since then. 
B)  decreased, and increased since then. 
C)  increased steadily and continued to increase since then. 
D)  was roughly constant, but has increased since.

Question 7

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

Question 8

Permanent tax reductions are more likely to be expansionary than temporary tax reductions.

Accepted Answer

A) True 
 B)False

Question 9

A federal budget deﬁcit exists when

Accepted Answer

A)  federal government assets are less than liabilities in a given year. 
B)  federal government spending exceeds tax revenues in a given year. 
C)  federal government spending is increasing in a given year. 
D)  federal government taxation is decreasing in a given year. 
A)  federal government assets are less than liabilities in a given year. 
B)  federal government spending exceeds tax revenues in a given year. 
C)  federal government spending is increasing in a given year. 
D)  federal government taxation is decreasing in a given year.

Question 10

Of the U.S. federal debt held by foreigners in 2018, China held roughly

Accepted Answer

A)  80 percent. 
B)  67 percent. 
C)  50 percent. 
D)  21 percent. 
A)  80 percent. 
B)  67 percent. 
C)  50 percent. 
D)  21 percent.

Question 11

When the economy is at full employment,

Accepted Answer

A)  one cannot generalize in comparing the actual and the cyclically adjusted budgets. 
B)  the cyclically adjusted budget will show a surplus and the actual budget will show a deﬁcit. 
C)  the actual budget will show a surplus and the cyclically adjusted budget will show a deﬁcit. 
D)  the actual and the cyclically adjusted budgets will be equal. 
A)  one cannot generalize in comparing the actual and the cyclically adjusted budgets. 
B)  the cyclically adjusted budget will show a surplus and the actual budget will show a deﬁcit. 
C)  the actual budget will show a surplus and the cyclically adjusted budget will show a deﬁcit. 
D)  the actual and the cyclically adjusted budgets will be equal.

Question 12

$$\begin{array} { | l | c | } 
\hline \text { Security } & \text { Amount (in Billions) } \
\hline \text { Treasury Bills } & \$ 220 \
\hline \text { Corporate Bonds } & 140 \
\hline \text { Treasury Notes } & 80 \
\hline \text { Corporate Stock } & 200 \
\hline \text { US Savings Bonds } & 60 \
\hline \text { Treasury Bonds } & 100 \
\hline
\end{array}$$ Other things equal, an increase of corporate bonds from $140 billion to $150 billion in the economy would

Accepted Answer

A)  not change the size of the public debt. 
B)  increase the public debt from $460 billion to $470 billion. 
C)  increase the public debt from $600 billion to $610 billion. 
D)  decrease the public debt by $20 billion. 
A)  not change the size of the public debt. 
B)  increase the public debt from $460 billion to $470 billion. 
C)  increase the public debt from $600 billion to $610 billion. 
D)  decrease the public debt by $20 billion.

Question 13

Fiscal policy is mainly undertaken by the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 14

In 2018, about ____ percent of the U.S. public debt was held by the U.S. government and Federal Reserve.

Accepted Answer

A)  14 
B)  50 
C)  62 
D)  37 
A)  14 
B)  50 
C)  62 
D)  37

Question 15

The cyclically adjusted budget tells us

Accepted Answer

A)  that in a full-employment economy, the federal budget should be in balance. 
B)  that tax revenues should vary inversely with GDP. 
C)  what the size of the federal budget deﬁcit or surplus would be if the economy was at full employment. 
D)  the actual budget deﬁcit or surplus realized in any given year. 
A)  that in a full-employment economy, the federal budget should be in balance. 
B)  that tax revenues should vary inversely with GDP. 
C)  what the size of the federal budget deﬁcit or surplus would be if the economy was at full employment. 
D)  the actual budget deﬁcit or surplus realized in any given year.

Question 16

$$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Actual Budget, Percent of GDP } \
\text { (-deficits, } + \text { Surpluses) }
\end{array} & \begin{array} { c } 
\text { Cyclically-Adjusted Budget, Percent of GDP } \
\text { (-deficits, } + \text { Surpluses) }
\end{array} \
\hline 1 & 0 & 0 \
\hline 2 & - 3 & 0 \
\hline 3 & - 5 & - 2 \
\hline 4 & - 2 & - 2 \
\hline 5 & + 2 & + 1 \
\hline
\end{array}$$ Refer to the table for a ?ctional economy. The changes in the budget conditions between Year 4 and 5 best re?ect a(n)

Accepted Answer

A)  recession. 
B)  expansionary ?scal policy. 
C)  tax increase. 
D)  contractionary ?scal policy. 
A)  recession. 
B)  expansionary ?scal policy. 
C)  tax increase. 
D)  contractionary ?scal policy.

Question 17

$$\begin{array} { | c | c | } 
\hline \text { Gross Domestic Product (GDP) } & \text { Consumption (C) } \
\hline \$ 0 & \$ 40 \
\hline 100 & 120 \
\hline 200 & 200 \
\hline 300 & 280 \
\hline 400 & 360 \
\hline
\end{array}$$ 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, we can conclude that
The tax

Accepted Answer

A)  enhances the economy's built-in stability. 
B)  reduces the economy's built-in stability. 
C)  neither increases nor decreases built-in stability. 
D)  increases the MPC and therefore increases the size of the multiplier. 
A)  enhances the economy's built-in stability. 
B)  reduces the economy's built-in stability. 
C)  neither increases nor decreases built-in stability. 
D)  increases the MPC and therefore increases the size of the multiplier.

Question 18

Which of the following is considered a legitimate concern of a large public debt?

Accepted Answer

A)  bankruptcy of the federal government 
B)  crowding out of private investment 
C)  burdening future generations 
D)  collapse of the ﬁnancial system 
A)  bankruptcy of the federal government 
B)  crowding out of private investment 
C)  burdening future generations 
D)  collapse of the ﬁnancial system

Question 19

Contractionary ﬁscal policy is so named because it

Accepted Answer

A)  involves a contraction of the nation's money supply. 
B)  necessarily reduces the size of government. 
C)  is aimed at reducing aggregate demand and thus achieving price stability. 
D)  is expressly designed to expand real GDP. 
A)  involves a contraction of the nation's money supply. 
B)  necessarily reduces the size of government. 
C)  is aimed at reducing aggregate demand and thus achieving price stability. 
D)  is expressly designed to expand real GDP.

Question 20

The public debt is the accumulation of all deﬁcits and surpluses that have occurred through time.

Accepted Answer

A) True 
 B)False

Exam 13: Fiscal Policy, Deficits, and Debt

The lag between the time that the need for ﬁscal action is recognized and the time action is actually taken is referred to as the

The Medicare trust fund is expected, if current ﬂows continue, to be depleted by 2024.

Incurring an internal debt to ﬁnance a war like World War II does not pass the true cost of the war on to future generations because

When the Federal government takes budgetary action to stimulate the economy or rein in inﬂation, such policy is

The bursting of the dot-com bubble in 2000, along with the terrorist attacks in 2001, made the U.S. government

From 1995 to 2001, the U.S. public debt relative to GDP

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.

Permanent tax reductions are more likely to be expansionary than temporary tax reductions.

A federal budget deﬁcit exists when

Of the U.S. federal debt held by foreigners in 2018, China held roughly

When the economy is at full employment,

Security Amount (in Billions) Treasury Bills \ 220 Corporate Bonds 140 Treasury Notes 80 Corporate Stock 200 US Savings Bonds 60 Treasury Bonds 100 Other things equal, an increase of corporate bonds from $140 billion to $150 billion in the economy would

Fiscal policy is mainly undertaken by the Federal Reserve.

In 2018, about ____ percent of the U.S. public debt was held by the U.S. government and Federal Reserve.

The cyclically adjusted budget tells us

Year Actual Budget, Percent of GDP (-deficits, + Surpluses) Cyclically-Adjusted Budget, Percent of GDP (-deficits, + Surpluses) 1 0 0 2 -3 0 3 -5 -2 4 -2 -2 5 +2 +1 Refer to the table for a ?ctional economy. The changes in the budget conditions between Year 4 and 5 best re?ect a(n)

Gross Domestic Product (GDP) Consumption (C) \ 0 \ 40 100 120 200 200 300 280 400 360 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, we can conclude that The tax

Which of the following is considered a legitimate concern of a large public debt?

Contractionary ﬁscal policy is so named because it

The public debt is the accumulation of all deﬁcits and surpluses that have occurred through time.

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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