Question 1

Which of the following serves as an automatic stabilizer in the economy?

Accepted Answer

A)  interest rates 
B)  exchange rates 
C)  the inﬂation rate 
D)  the progressive income tax 
A)  interest rates 
B)  exchange rates 
C)  the inﬂation rate 
D)  the progressive income tax

Question 2

Accepted Answer

A)  shift aggregate demand by increasing taxes 
B)  shift aggregate demand by decreasing transfer payments 
C)  shift aggregate demand by decreasing government spending 
D)  shift aggregate demand by increasing transfer payments 
A)  shift aggregate demand by increasing taxes 
B)  shift aggregate demand by decreasing transfer payments 
C)  shift aggregate demand by decreasing government spending 
D)  shift aggregate demand by increasing transfer payments

Question 3

$$\begin{array} { | c | c | c | c | } 
\hline & \begin{array} { c } 
\text { Government } \
\text { Spending }
\end{array} & \text { Tax Revenues } & \text { GDP } \
\hline \text { Year 1 } & \$ 450 & \$ 425 & \$ 2,000 \
\hline \text { Year 2 } & 500 & 450 & 3,000 \
\hline \text { Year 3 } & 600 & 500 & 4,000 \
\hline \text { Year 4 } & 640 & 620 & 5,000 \
\hline \text { Year 5 } & 680 & 580 & 4,800 \
\hline \text { Year 6 } & 600 & 620 & 5,000 \
\hline
\end{array}$$ The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. As a percentage of GDP, the

Accepted Answer

A)  budget de?cit was 3.9 percent in year 4. 
B)  budget surplus was less than 1 percent in year 6. 
C)  public debt was 3 percent in year 6. 
D)  public debt was 12.5 percent in year 1. 
A)  budget de?cit was 3.9 percent in year 4. 
B)  budget surplus was less than 1 percent in year 6. 
C)  public debt was 3 percent in year 6. 
D)  public debt was 12.5 percent in year 1.

Question 4

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. In this economy,

Accepted Answer

A)  tax revenues and government spending both vary directly with GDP. 
B)  tax revenues vary directly with GDP, but government spending is independent of GDP. 
C)  tax revenues and government spending both vary inversely with GDP. 
D)  government spending varies directly with GDP, but tax revenues are independent of GDP. 
A)  tax revenues and government spending both vary directly with GDP. 
B)  tax revenues vary directly with GDP, but government spending is independent of GDP. 
C)  tax revenues and government spending both vary inversely with GDP. 
D)  government spending varies directly with GDP, but tax revenues are independent of GDP.

Question 5

The cyclically adjusted deﬁcit as a percentage of GDP is 2 percent in Year 1. This cyclically adjusted deﬁcit becomes 1 percent of GDP in Year 2. It can be concluded that from Year 1 to Year 2,

Accepted Answer

A)  ﬁscal policy was more expansionary. 
B)  ﬁscal policy was more contractionary. 
C)  the Federal government is decreasing taxes. 
D)  the Federal government is increasing spending. 
A)  ﬁscal policy was more expansionary. 
B)  ﬁscal policy was more contractionary. 
C)  the Federal government is decreasing taxes. 
D)  the Federal government is increasing spending.

Question 6

The actual and cyclically adjusted budgets will be equal when the economy is at full employment.

Accepted Answer

A) True 
 B)False

Question 7

$$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Actual Budget Deficit (-) or } \
\text { Surplus (+) }
\end{array} & \begin{array} { c } 
\text { Cyclically Adjusted Deficit (-) or Surplus } \
( + )
\end{array} \
\hline 1 & + 1.4 \% & + 0.1 \% \
\hline 2 & + 2.5 & + 1.1 \
\hline 3 & + 1.3 & + 1.1 \
\hline 4 & - 1.5 & - 1.1 \
\hline 5 & - 3.4 & - 2.7 \
\hline 6 & - 3.5 & - 2.4 \
\hline 7 & - 2.6 & - 1.8 \
\hline 8 & - 1.9 & - 1.8 \
\hline 9 & - 1.3 & - 1.4 \
\hline
\end{array}$$ Refer to the data in the table. The direction of ?scal policy became more contractionary from

Accepted Answer

A)  Year 7 to 8. 
B)  Year 3 to 4. 
C)  Year 4 to 5. 
D)  Year 5 to 6. 
A)  Year 7 to 8. 
B)  Year 3 to 4. 
C)  Year 4 to 5. 
D)  Year 5 to 6.

Question 8

A major reason that the public debt cannot bankrupt the federal government is because

Accepted Answer

A)  the public debt is mostly held by foreigners. 
B)  the federal government has the Social Security Trust Fund. 
C)  the public debt can be easily reﬁnanced by issuing new bonds. 
D)  the federal government can draw on its gold reserves. 
A)  the public debt is mostly held by foreigners. 
B)  the federal government has the Social Security Trust Fund. 
C)  the public debt can be easily reﬁnanced by issuing new bonds. 
D)  the federal government can draw on its gold reserves.

Question 9

When Social Security contributions have exceeded payouts in the past, the excess amounts were used
to help ﬁnance the federal government's budget deﬁcits.

Accepted Answer

A) True 
 B)False

Question 10

If the full-employment GDP for the economy is at L, then we can say with certainty that the

Accepted Answer

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

Question 11

An appropriate ﬁscal policy for a severe recession is

Accepted Answer

A)  a decrease in government spending. 
B)  a decrease in tax rates. 
C)  appreciation of the dollar. 
D)  an increase in interest rates. 
A)  a decrease in government spending. 
B)  a decrease in tax rates. 
C)  appreciation of the dollar. 
D)  an increase in interest rates.

Question 12

Built-in stability is synonymous with discretionary ﬁscal policy.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is an important real consequence of the public debt of the United States?

Accepted Answer

A)  It will threaten to bankrupt the federal government. 
B)  It discourages saving among the general public. 
C)  It decreases the inequality in the distribution of income in the U.S. 
D)  Its consequent higher interest rates lead to fewer incentives to bear risk and innovate. 
A)  It will threaten to bankrupt the federal government. 
B)  It discourages saving among the general public. 
C)  It decreases the inequality in the distribution of income in the U.S. 
D)  Its consequent higher interest rates lead to fewer incentives to bear risk and innovate.

Question 14

The payment of interest on the public debt in the United States mildly increases income inequality.

Accepted Answer

A) True 
 B)False

Question 15

Deﬁne public investments.

Accepted Answer

Public investments are government expend

Question 16

If the MPC in the economy is 0.75, government could shift the aggregate demand curve rightward by
$30 billion by cutting taxes by $10 billion.

Accepted Answer

A) True 
 B)False

Question 17

The crowding-out effect will be minimal when the economy is in a severe recession.

Accepted Answer

A) True 
 B)False

Question 18

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. The budget will entail a deﬁcit

Accepted Answer

A)  at all levels of GDP. 
B)  at any level of GDP above $400. 
C)  at any level of GDP below $400. 
D)  only when GDP is stable. 
A)  at all levels of GDP. 
B)  at any level of GDP above $400. 
C)  at any level of GDP below $400. 
D)  only when GDP is stable.

Question 19

Crowding out is a decrease in private investment caused by

Accepted Answer

A)  increased taxation by the government. 
B)  increased borrowing by the government. 
C)  increased consumer spending by households. 
D)  increased exports to buyers in other nations. 
A)  increased taxation by the government. 
B)  increased borrowing by the government. 
C)  increased consumer spending by households. 
D)  increased exports to buyers in other nations.

Question 20

Refer to the diagram. The degree of built-in stability in the economy could be increased by

Accepted Answer

A)  reducing government purchases so that the purchases line shifts downward but parallel to its present position. 
B)  changing the tax system so that the tax line is shifted downward but parallel to its present position. 
C)  changing the tax system so that the tax line has a greater slope. 
D)  altering the government expenditures line so that it has a positive slope. 
A)  reducing government purchases so that the purchases line shifts downward but parallel to its present position. 
B)  changing the tax system so that the tax line is shifted downward but parallel to its present position. 
C)  changing the tax system so that the tax line has a greater slope. 
D)  altering the government expenditures line so that it has a positive slope.

Which of the following serves as an automatic stabilizer in the economy?

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. In this economy,

The cyclically adjusted deﬁcit as a percentage of GDP is 2 percent in Year 1. This cyclically adjusted deﬁcit becomes 1 percent of GDP in Year 2. It can be concluded that from Year 1 to Year 2,

The actual and cyclically adjusted budgets will be equal when the economy is at full employment.

Year Actual Budget Deficit (-) or Surplus (+) Cyclically Adjusted Deficit (-) or Surplus (+) 1 +1.4\% +0.1\% 2 +2.5 +1.1 3 +1.3 +1.1 4 -1.5 -1.1 5 -3.4 -2.7 6 -3.5 -2.4 7 -2.6 -1.8 8 -1.9 -1.8 9 -1.3 -1.4 Refer to the data in the table. The direction of ?scal policy became more contractionary from

A major reason that the public debt cannot bankrupt the federal government is because

When Social Security contributions have exceeded payouts in the past, the excess amounts were used to help ﬁnance the federal government's budget deﬁcits.

If the full-employment GDP for the economy is at L, then we can say with certainty that the

An appropriate ﬁscal policy for a severe recession is

Built-in stability is synonymous with discretionary ﬁscal policy.

Which of the following is an important real consequence of the public debt of the United States?

The payment of interest on the public debt in the United States mildly increases income inequality.

Deﬁne public investments.

If the MPC in the economy is 0.75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

The crowding-out effect will be minimal when the economy is in a severe recession.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. The budget will entail a deﬁcit

Crowding out is a decrease in private investment caused by

Refer to the diagram. The degree of built-in stability in the economy could be increased 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

Which of the following serves as an automatic stabilizer in the economy?

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. In this economy,

The cyclically adjusted deﬁcit as a percentage of GDP is 2 percent in Year 1. This cyclically adjusted deﬁcit becomes 1 percent of GDP in Year 2. It can be concluded that from Year 1 to Year 2,

The actual and cyclically adjusted budgets will be equal when the economy is at full employment.

Year Actual Budget Deficit (-) or Surplus (+) Cyclically Adjusted Deficit (-) or Surplus (+) 1 +1.4\% +0.1\% 2 +2.5 +1.1 3 +1.3 +1.1 4 -1.5 -1.1 5 -3.4 -2.7 6 -3.5 -2.4 7 -2.6 -1.8 8 -1.9 -1.8 9 -1.3 -1.4 Refer to the data in the table. The direction of ?scal policy became more contractionary from

A major reason that the public debt cannot bankrupt the federal government is because

When Social Security contributions have exceeded payouts in the past, the excess amounts were used to help ﬁnance the federal government's budget deﬁcits.

If the full-employment GDP for the economy is at L, then we can say with certainty that the

An appropriate ﬁscal policy for a severe recession is

Built-in stability is synonymous with discretionary ﬁscal policy.

Which of the following is an important real consequence of the public debt of the United States?

The payment of interest on the public debt in the United States mildly increases income inequality.

Deﬁne public investments.

If the MPC in the economy is 0.75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

The crowding-out effect will be minimal when the economy is in a severe recession.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. The budget will entail a deﬁcit

Crowding out is a decrease in private investment caused by

Refer to the diagram. The degree of built-in stability in the economy could be increased 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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