Question 1

Accepted Answer

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

Question 2

The so-called crowding-out effect refers to government spending crowding out private investment
spending.

Accepted Answer

A) True 
 B)False

Question 3

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the

Accepted Answer

A)  Federal Reserve. 
B)  budget deﬁcit. 
C)  budget surplus. 
D)  public debt. 
A)  Federal Reserve. 
B)  budget deﬁcit. 
C)  budget surplus. 
D)  public debt.

Question 4

Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part
of the economic cost of war.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The so-called recognition lag associated with ﬁscal policy is a result of how slowly the U.S. Congress
moves.

Accepted Answer

A) True 
 B)False

Question 7

Fiscal policy is enacted through changes in

Accepted Answer

A)  interest rates and the price level. 
B)  the supply of money and foreign exchange. 
C)  unemployment and inﬂation. 
D)  taxation and government spending. 
A)  interest rates and the price level. 
B)  the supply of money and foreign exchange. 
C)  unemployment and inﬂation. 
D)  taxation and government spending.

Question 8

A decrease in taxes is one way to pursue a contractionary ﬁscal policy because it will make government
revenues contract.

Accepted Answer

A) True 
 B)False

Question 9

A large public debt would not bankrupt the federal government, because it can reﬁnance the debt or
increase taxes to pay the debt.

Accepted Answer

A) True 
 B)False

Question 10

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 leftward from AD
$A D _ { 3 } \text { to } A D _ { 2 }$ , assuming downward price ?exibility. 
C)  increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. 
D)  increase taxes and reduce government spending to shift the aggregate demand curve from
$A D _ { 3 } \text { to } A D _ { 1 }$ 
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 leftward from AD
$A D _ { 3 } \text { to } A D _ { 2 }$ , assuming downward price ?exibility. 
C)  increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. 
D)  increase taxes and reduce government spending to shift the aggregate demand curve from
$A D _ { 3 } \text { to } A D _ { 1 }$

Question 11

Discretionary ﬁscal policy will stabilize the economy most when

Accepted Answer

A)  deﬁcits are incurred during recessions and surpluses during inﬂations. 
B)  the budget is balanced each year. 
C)  deﬁcits are incurred during inﬂations and surpluses during recessions. 
D)  budget surpluses are continuously incurred. 
A)  deﬁcits are incurred during recessions and surpluses during inﬂations. 
B)  the budget is balanced each year. 
C)  deﬁcits are incurred during inﬂations and surpluses during recessions. 
D)  budget surpluses are continuously incurred.

Question 12

Demand-pull inﬂation can be restrained by increasing government spending and reducing taxes.

Accepted Answer

A) True 
 B)False

Question 13

Expansionary ﬁscal policy during a recession means cutting taxes, increasing government spending, or
taking both actions.

Accepted Answer

A) True 
 B)False

Question 14

One of the potential consequences of the public debt is that it may

Accepted Answer

A)  make income distribution more equitable. 
B)  increase the debt burden of foreign creditors. 
C)  lead to additional future taxes that reduce economic incentives. 
D)  decrease interest rates and increase investment spending. 
A)  make income distribution more equitable. 
B)  increase the debt burden of foreign creditors. 
C)  lead to additional future taxes that reduce economic incentives. 
D)  decrease interest rates and increase investment spending.

Question 15

The "stimulus package" that the government implemented in response to the Great Recession of 2007-
09 made the cyclically adjusted budget of the U.S. have a very large positive balance in that time
period.

Accepted Answer

A) True 
 B)False

Question 16

It is more meaningful economically to measure the public debt relative to the GDP than to measure it in
absolute terms.

Accepted Answer

A) True 
 B)False

Question 17

The crowding-out effect is

Accepted Answer

A)  strongest when the economy is at full employment. 
B)  strongest when the economy is in a deep recession. 
C)  weakest when there is demand-pull inﬂation. 
D)  equally strong, regardless of the state of the macroeconomy. 
A)  strongest when the economy is at full employment. 
B)  strongest when the economy is in a deep recession. 
C)  weakest when there is demand-pull inﬂation. 
D)  equally strong, regardless of the state of the macroeconomy.

Question 18

Refer to the graph. Assume that the economy is in a recession with a price level of $P _ { 1 }$ and output level
$Q _ { 1 }$ . The government then adopts an appropriate discretionary ?scal policy. What will be the most likely
New equilibrium price level and output?

Accepted Answer

A)  $P _ { 2 } \text { and } Q _ { 4 }$ 
B)  $P _ { 1 } \text { and } Q _ { 1 }$ 
C)  $P _ { 2 } \text { and } Q _ { 2 }$ 
D)  $P _ { 1 } \text { and } Q _ { 3 }$ 
A)  $P _ { 2 } \text { and } Q _ { 4 }$ 
B)  $P _ { 1 } \text { and } Q _ { 1 }$ 
C)  $P _ { 2 } \text { and } Q _ { 2 }$ 
D)  $P _ { 1 } \text { and } Q _ { 3 }$

Question 19

The crowding-out effect refers to the possibility that deﬁcit spending may motivate people to increase
their saving in anticipation of higher future taxes.

Accepted Answer

A) True 
 B)False

Question 20

The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending,
Assuming that the aggregate supply curve is horizontal across the range of GDP being considered?

Accepted Answer

A)  $6 billion 
B)  $8 billion 
C)  $10 billion 
D)  $16 billion 
A)  $6 billion 
B)  $8 billion 
C)  $10 billion 
D)  $16 billion

The so-called crowding-out effect refers to government spending crowding out private investment spending.

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the

Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part of the economic cost of war.

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

The so-called recognition lag associated with ﬁscal policy is a result of how slowly the U.S. Congress moves.

Fiscal policy is enacted through changes in

A decrease in taxes is one way to pursue a contractionary ﬁscal policy because it will make government revenues contract.

A large public debt would not bankrupt the federal government, because it can reﬁnance the debt or increase taxes to pay the debt.

Discretionary ﬁscal policy will stabilize the economy most when

Demand-pull inﬂation can be restrained by increasing government spending and reducing taxes.

Expansionary ﬁscal policy during a recession means cutting taxes, increasing government spending, or taking both actions.

One of the potential consequences of the public debt is that it may

The "stimulus package" that the government implemented in response to the Great Recession of 2007- 09 made the cyclically adjusted budget of the U.S. have a very large positive balance in that time period.

It is more meaningful economically to measure the public debt relative to the GDP than to measure it in absolute terms.

The crowding-out effect is

The crowding-out effect refers to the possibility that deﬁcit spending may motivate people to increase their saving in anticipation of higher future taxes.

The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending, Assuming that the aggregate supply curve is horizontal across the range of GDP being considered?

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

The so-called crowding-out effect refers to government spending crowding out private investment spending.

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the

Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part of the economic cost of war.

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

The so-called recognition lag associated with ﬁscal policy is a result of how slowly the U.S. Congress moves.

Fiscal policy is enacted through changes in

A decrease in taxes is one way to pursue a contractionary ﬁscal policy because it will make government revenues contract.

A large public debt would not bankrupt the federal government, because it can reﬁnance the debt or increase taxes to pay the debt.

Discretionary ﬁscal policy will stabilize the economy most when

Demand-pull inﬂation can be restrained by increasing government spending and reducing taxes.

Expansionary ﬁscal policy during a recession means cutting taxes, increasing government spending, or taking both actions.

One of the potential consequences of the public debt is that it may

The "stimulus package" that the government implemented in response to the Great Recession of 2007- 09 made the cyclically adjusted budget of the U.S. have a very large positive balance in that time period.

It is more meaningful economically to measure the public debt relative to the GDP than to measure it in absolute terms.

The crowding-out effect is

Refer to the graph. Assume that the economy is in a recession with a price level of P1P _ { 1 }P1​ and output level Q1Q _ { 1 }Q1​ . The government then adopts an appropriate discretionary ?scal policy. What will be the most likely New equilibrium price level and output?

The crowding-out effect refers to the possibility that deﬁcit spending may motivate people to increase their saving in anticipation of higher future taxes.

The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending, Assuming that the aggregate supply curve is horizontal across the range of GDP being considered?

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