Question 1

Describe the problem of timing in conducting ﬁscal policy.

Accepted Answer

The timing problem refers to the three l

Question 2

Expansionary ﬁscal policy will tend to reduce the budget deﬁcit.

Accepted Answer

A) True 
 B)False

Question 3

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 4

A procyclical ﬁscal policy, like those of many state and local governments in the United States, tends to

Accepted Answer

A)  worsen recessions or inﬂation. 
B)  become contractionary during inﬂationary periods. 
C)  raise government spending or cut taxes during recessions. 
D)  increase the budget deﬁcit during recessionary periods. 
A)  worsen recessions or inﬂation. 
B)  become contractionary during inﬂationary periods. 
C)  raise government spending or cut taxes during recessions. 
D)  increase the budget deﬁcit during recessionary periods.

Question 5

Accepted Answer

A)  reduce government expenditures and taxes by equal-size amounts. 
B)  reduce government expenditures or increase taxes. 
C)  increase government expenditures or reduce taxes. 
D)  reduce unemployment compensation beneﬁts. 
A)  reduce government expenditures and taxes by equal-size amounts. 
B)  reduce government expenditures or increase taxes. 
C)  increase government expenditures or reduce taxes. 
D)  reduce unemployment compensation beneﬁts.

Question 6

Discretionary ﬁscal policy refers to

Accepted Answer

A)  any change in government spending or taxes that destabilizes the economy. 
B)  the authority that the president has to change personal income tax rates. 
C)  intentional changes in taxes and government expenditures made by Congress to stabilize the economy. 
D)  the changes in taxes and transfers that occur as GDP changes. 
A)  any change in government spending or taxes that destabilizes the economy. 
B)  the authority that the president has to change personal income tax rates. 
C)  intentional changes in taxes and government expenditures made by Congress to stabilize the economy. 
D)  the changes in taxes and transfers that occur as GDP changes.

Question 7

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by

Accepted Answer

A)  increasing government spending by $4 billion. 
B)  increasing government spending by $40 billion. 
C)  decreasing taxes by $4 billion. 
D)  increasing taxes by $4 billion. 
A)  increasing government spending by $4 billion. 
B)  increasing government spending by $40 billion. 
C)  decreasing taxes by $4 billion. 
D)  increasing taxes by $4 billion.

Question 8

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 9

If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement

Accepted Answer

A)  contractionary ﬁscal policy. 
B)  no change in ﬁscal policy. 
C)  expansionary ﬁscal policy. 
D)  countercyclical ﬁscal policy. 
A)  contractionary ﬁscal policy. 
B)  no change in ﬁscal policy. 
C)  expansionary ﬁscal policy. 
D)  countercyclical ﬁscal policy.

Question 10

Accepted Answer

A)  an inﬂationary GDP gap. 
B)  a recessionary GDP gap. 
C)  a recession. 
D)  cost-push inﬂation. 
A)  an inﬂationary GDP gap. 
B)  a recessionary GDP gap. 
C)  a recession. 
D)  cost-push inﬂation.

Question 11

Accepted Answer

A)  inﬂation 
B)  an increase in stock prices 
C)  offsetting state and local ﬁnance 
D)  a ratchet effect 
A)  inﬂation 
B)  an increase in stock prices 
C)  offsetting state and local ﬁnance 
D)  a ratchet effect

Question 12

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion, (2) investment = $50 billion, (3) government purchases = $100
Billion, and (4) net export = $20 billion. If the full-employment level of GDP for this economy is $620
Billion, then what combination of actions would be most consistent with closing the GDP gap here?

Accepted Answer

A)  increase government spending and taxes 
B)  decrease government spending and taxes 
C)  decrease government spending and increase taxes 
D)  increase government spending and decrease taxes 
A)  increase government spending and taxes 
B)  decrease government spending and taxes 
C)  decrease government spending and increase taxes 
D)  increase government spending and decrease taxes

Question 13

Accepted Answer

A)  the most appropriate ﬁscal policy is an increase of government expenditures or a reduction of taxes. 
B)  the most appropriate ﬁscal policy is a reduction of government expenditures or an increase of taxes. 
C)  government should undertake neither expansionary nor contractionary ﬁscal policy. 
D)  the economy is achieving its maximum possible output. 
A)  the most appropriate ﬁscal policy is an increase of government expenditures or a reduction of taxes. 
B)  the most appropriate ﬁscal policy is a reduction of government expenditures or an increase of taxes. 
C)  government should undertake neither expansionary nor contractionary ﬁscal policy. 
D)  the economy is achieving its maximum possible output.

Question 14

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 GDP is $400 billion, while the actual GDP is $200 billion, the
Actual budget deﬁcit is

Accepted Answer

A)  $200 billion. 
B)  $20 billion. 
C)  $40 billion. 
D)  $60 billion. 
A)  $200 billion. 
B)  $20 billion. 
C)  $40 billion. 
D)  $60 billion.

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

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by

Accepted Answer

A)  reducing government expenditures by $12 billion. 
B)  reducing government expenditures by $60 billion. 
C)  increasing taxes by $15 billion. 
D)  increasing taxes by $20 billion. 
A)  reducing government expenditures by $12 billion. 
B)  reducing government expenditures by $60 billion. 
C)  increasing taxes by $15 billion. 
D)  increasing taxes by $20 billion.

Question 17

Which of the following represents the most expansionary ﬁscal policy?

Accepted Answer

A)  a $10 billion tax cut 
B)  a $10 billion increase in government spending 
C)  a $10 billion tax increase 
D)  a $10 billion decrease in government spending 
A)  a $10 billion tax cut 
B)  a $10 billion increase in government spending 
C)  a $10 billion tax increase 
D)  a $10 billion decrease in government spending

Question 18

To say that "the U.S. public debt is mostly held internally" is to say that

Accepted Answer

A)  only interest payments on the public debt are an economic burden. 
B)  oﬃcial ﬁgures understate the size of the public debt. 
C)  the bulk of the public debt is owned by U.S. citizens and institutions. 
D)  the public debt is equal to the land and building assets owned by the federal government. 
A)  only interest payments on the public debt are an economic burden. 
B)  oﬃcial ﬁgures understate the size of the public debt. 
C)  the bulk of the public debt is owned by U.S. citizens and institutions. 
D)  the public debt is equal to the land and building assets owned by the federal government.

Question 19

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 GDP is $400 billion, while the actual GDP is $200 billion, the
Cyclically adjusted budget deﬁcit is

Accepted Answer

A)  $40 billion. 
B)  zero. 
C)  $60 billion. 
D)  $20 billion. 
A)  $40 billion. 
B)  zero. 
C)  $60 billion. 
D)  $20 billion.

Question 20

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

Accepted Answer

A) True 
 B)False

Describe the problem of timing in conducting ﬁscal policy.

Expansionary ﬁscal policy will tend to reduce the budget deﬁcit.

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

A procyclical ﬁscal policy, like those of many state and local governments in the United States, tends to

Discretionary ﬁscal policy refers to

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by

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

If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement

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 GDP is $400 billion, while the actual GDP is $200 billion, the Actual budget deﬁcit is

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.

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by

Which of the following represents the most expansionary ﬁscal policy?

To say that "the U.S. public debt is mostly held internally" is to say that

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 GDP is $400 billion, while the actual GDP is $200 billion, the Cyclically adjusted budget deﬁcit is

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

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

Describe the problem of timing in conducting ﬁscal policy.

Expansionary ﬁscal policy will tend to reduce the budget deﬁcit.

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

A procyclical ﬁscal policy, like those of many state and local governments in the United States, tends to

Discretionary ﬁscal policy refers to

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by

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

If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement

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 GDP is $400 billion, while the actual GDP is $200 billion, the Actual budget deﬁcit is

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.

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by

Which of the following represents the most expansionary ﬁscal policy?

To say that "the U.S. public debt is mostly held internally" is to say that

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 GDP is $400 billion, while the actual GDP is $200 billion, the Cyclically adjusted budget deﬁcit is

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

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