Question 1

Suppose the price level is ﬁxed, the MPC is 0.5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should

Accepted Answer

A)  increase government expenditures by $100 billion. 
B)  increase government expenditures by $50 billion. 
C)  reduce taxes by $50 billion. 
D)  reduce taxes by $200 billion. 
A)  increase government expenditures by $100 billion. 
B)  increase government expenditures by $50 billion. 
C)  reduce taxes by $50 billion. 
D)  reduce taxes by $200 billion.

Question 2

The cyclically adjusted surplus in the U.S. went from +1.2 percent of GDP in 2000 to −1.2 percent of GDP in 2002. This suggests that the government during that period

Accepted Answer

A)  cut taxes and/or increased spending. 
B)  increased taxes and/or cut spending. 
C)  wanted to rein in inﬂation. 
D)  did not change its discretionary ﬁscal policy. 
A)  cut taxes and/or increased spending. 
B)  increased taxes and/or cut spending. 
C)  wanted to rein in inﬂation. 
D)  did not change its discretionary ﬁscal policy.

Question 3

Deﬁne expansionary ﬁscal policy. During which phase of the business cycle would it be appropriate to
use?

Accepted Answer

Expansionary ﬁscal policy is an increase

Question 4

In the later part of 2009, something historic happened relative to Social Security; for the ﬁrst time,

Accepted Answer

A)  Social Security revenues became zero. 
B)  Social Security contributions fell short of payouts. 
C)  Social Security payouts did not increase. 
D)  the Social Security Trust Fund ran out of funds. 
A)  Social Security revenues became zero. 
B)  Social Security contributions fell short of payouts. 
C)  Social Security payouts did not increase. 
D)  the Social Security Trust Fund ran out of funds.

Question 5

If the economy has a cyclically adjusted budget surplus, this means that

Accepted Answer

A)  the public sector is exerting an expansionary impact on the economy. 
B)  tax revenues would exceed government expenditures if full employment were achieved. 
C)  the actual budget is necessarily also in surplus. 
D)  the economy is actually operating at full employment. 
A)  the public sector is exerting an expansionary impact on the economy. 
B)  tax revenues would exceed government expenditures if full employment were achieved. 
C)  the actual budget is necessarily also in surplus. 
D)  the economy is actually operating at full employment.

Question 6

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system

Accepted Answer

A)  increases crowding out in the economy. 
B)  decreases real interest rates in the economy. 
C)  offsets the timing problem for ﬁscal policy. 
D)  serves as an automatic stabilizer for the economy. 
A)  increases crowding out in the economy. 
B)  decreases real interest rates in the economy. 
C)  offsets the timing problem for ﬁscal policy. 
D)  serves as an automatic stabilizer for the economy.

Question 7

The public debt is held as

Accepted Answer

A)  U.S. securities, corporate bonds, and common stock. 
B)  Federal Reserve Notes. 
C)  U.S. gold certiﬁcates. 
D)  Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds. 
A)  U.S. securities, corporate bonds, and common stock. 
B)  Federal Reserve Notes. 
C)  U.S. gold certiﬁcates. 
D)  Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

Question 8

Which of the following statements is correct?

Accepted Answer

A)  Built-in stability only partially offsets ﬂuctuations in economic activity. 
B)  Built-in stability works in halting inﬂation, but it cannot alleviate unemployment. 
C)  Built-in stability can be relied on to eliminate completely any ﬂuctuation in economic activity. 
D)  Built-in stability has eliminated the need for discretionary ﬁscal policy. 
A)  Built-in stability only partially offsets ﬂuctuations in economic activity. 
B)  Built-in stability works in halting inﬂation, but it cannot alleviate unemployment. 
C)  Built-in stability can be relied on to eliminate completely any ﬂuctuation in economic activity. 
D)  Built-in stability has eliminated the need for discretionary ﬁscal policy.

Question 9

Accepted Answer

A)  an increase in taxes and an increase in government spending 
B)  a decrease in taxes and an increase in government spending 
C)  an increase in taxes and no change in government spending 
D)  a decrease in taxes and a decrease in government spending 
A)  an increase in taxes and an increase in government spending 
B)  a decrease in taxes and an increase in government spending 
C)  an increase in taxes and no change in government spending 
D)  a decrease in taxes and a decrease in government spending

Question 10

The crowding-out effect of expansionary ﬁscal policy suggests that

Accepted Answer

A)  tax increases are paid primarily out of saving and therefore are not an effective ﬁscal device. 
B)  increases in government spending ﬁnanced through borrowing will increase the interest rate and thereby reduce investment. 
C)  it is very diﬃcult to have excessive aggregate spending in the U.S. economy. 
D)  consumer and investment spending always vary inversely. 
A)  tax increases are paid primarily out of saving and therefore are not an effective ﬁscal device. 
B)  increases in government spending ﬁnanced through borrowing will increase the interest rate and thereby reduce investment. 
C)  it is very diﬃcult to have excessive aggregate spending in the U.S. economy. 
D)  consumer and investment spending always vary inversely.

Question 11

If the government wishes to increase the level of real GDP, it might reduce

Accepted Answer

A)  taxes. 
B)  transfer payments. 
C)  the size of the budget deﬁcit. 
D)  its purchases of goods and services. 
A)  taxes. 
B)  transfer payments. 
C)  the size of the budget deﬁcit. 
D)  its purchases of goods and services.

Question 12

A public debt that is owed to foreigners can be burdensome because

Accepted Answer

A)  foreign interest rates are persistently higher than domestic interest rates. 
B)  the payment of interest reduces the volume of goods and services available for domestic uses. 
C)  the payment of interest will conﬂict with a nation's foreign aid programs. 
D)  the payment of interest will necessarily have a deﬂationary effect on prices in the paying nation. 
A)  foreign interest rates are persistently higher than domestic interest rates. 
B)  the payment of interest reduces the volume of goods and services available for domestic uses. 
C)  the payment of interest will conﬂict with a nation's foreign aid programs. 
D)  the payment of interest will necessarily have a deﬂationary effect on prices in the paying nation.

Question 13

How is the public debt calculated?

Accepted Answer

A)  by subtracting the government's total liabilities from its total assets 
B)  by cumulating the annual government purchases over time 
C)  by subtracting current government spending from current government tax revenues 
D)  by cumulating the annual difference between tax revenues and government spending over the years 
A)  by subtracting the government's total liabilities from its total assets 
B)  by cumulating the annual government purchases over time 
C)  by subtracting current government spending from current government tax revenues 
D)  by cumulating the annual difference between tax revenues and government spending over the years

Question 14

Which of the following statements is correct?

Accepted Answer

A)  The cyclically adjusted budget and the actual budget differ because the latter does not take government transfer payments into account. 
B)  The cyclically adjusted budget is less likely to show a deﬁcit than is the actual budget. 
C)  The cyclically adjusted budget and the actual budget will show the same size deﬁcit or surplus in any given ﬁscal year. 
D)  The cyclically adjusted budget is more likely to show a deﬁcit than is the actual budget. 
A)  The cyclically adjusted budget and the actual budget differ because the latter does not take government transfer payments into account. 
B)  The cyclically adjusted budget is less likely to show a deﬁcit than is the actual budget. 
C)  The cyclically adjusted budget and the actual budget will show the same size deﬁcit or surplus in any given ﬁscal year. 
D)  The cyclically adjusted budget is more likely to show a deﬁcit than is the actual budget.

Question 15

Which of the following is a true statement?

Accepted Answer

A)  Fiscal policy has been expansionary every year since 2000. 
B)  Fiscal policy has been contractionary every year since 2000. 
C)  Fiscal policy swung from expansionary to contractionary in 2002. 
D)  Fiscal policy swung from contractionary to expansionary in 2002. 
A)  Fiscal policy has been expansionary every year since 2000. 
B)  Fiscal policy has been contractionary every year since 2000. 
C)  Fiscal policy swung from expansionary to contractionary in 2002. 
D)  Fiscal policy swung from contractionary to expansionary in 2002.

Question 16

Refer to the ?gure. Suppose that the economy is currently operating at the intersection of AS and AD $A D _ { 2 }$ and that the full-employment level of output is Y. If contractionary ?scal policy and accompanying
Multiplier effects move aggregate demand from AD
$A D _ { 2 } \text { to } A D _ { 1 }$ , what will be the effect on real GDP and the
Price level?

Accepted Answer

A)  Real GDP will fall to Y and the price level will fall to $P _ { 0 }$ , assuming in?exible prices. 
B)  Real GDP will fall to X and the price level will remain unchanged, assuming prices are in?exible downward. 
C)  Real GDP will fall to X and the price level will fall to $P _ { 0 }$ , assuming in?exible prices. 
D)  Real GDP will fall to Y and the price level will remain unchanged, assuming in?exible prices. 
A)  Real GDP will fall to Y and the price level will fall to $P _ { 0 }$ , assuming in?exible prices. 
B)  Real GDP will fall to X and the price level will remain unchanged, assuming prices are in?exible downward. 
C)  Real GDP will fall to X and the price level will fall to $P _ { 0 }$ , assuming in?exible prices. 
D)  Real GDP will fall to Y and the price level will remain unchanged, assuming in?exible prices.

Question 17

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will

Accepted Answer

A)  shift the AD curve to the right. 
B)  increase the equilibrium GDP. 
C)  not affect the AD curve. 
D)  shift the AD curve to the left. 
A)  shift the AD curve to the right. 
B)  increase the equilibrium GDP. 
C)  not affect the AD curve. 
D)  shift the AD curve to the left.

Question 18

$$\begin{array} { | c | c | c | c | } 
\hline & \begin{array} { c } 
\text { Government } \
\text { Spending }
\end{array} & \text { Tax Revenues } & \text { GDP } \
\hline \text { Year 1 } & \$ 800 & \$ 825 & \$ 4,000 \
\hline \text { Year 2 } & 850 & 850 & 4,200 \
\hline \text { Year 3 } & 900 & 875 & 4,350 \
\hline \text { Year 4 } & 950 & 900 & 4,500 \
\hline \text { Year 5 } & 1,000 & 925 & 4,600 \
\hline
\end{array}$$ The table contains budget information for a hypothetical economy. All data are in billions of dollars. In which year is there a budget surplus?

Accepted Answer

A)  Year 1 
B)  Year 2 
C)  Year 4 
D)  Year 5 
A)  Year 1 
B)  Year 2 
C)  Year 4 
D)  Year 5

Question 19

Accepted Answer

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

Question 20

The intent of contractionary ﬁscal policy is to

Accepted Answer

A)  increase aggregate demand. 
B)  decrease aggregate demand. 
C)  increase aggregate supply. 
D)  decrease aggregate supply. 
A)  increase aggregate demand. 
B)  decrease aggregate demand. 
C)  increase aggregate supply. 
D)  decrease aggregate supply.

Suppose the price level is ﬁxed, the MPC is 0.5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should

The cyclically adjusted surplus in the U.S. went from +1.2 percent of GDP in 2000 to −1.2 percent of GDP in 2002. This suggests that the government during that period

Deﬁne expansionary ﬁscal policy. During which phase of the business cycle would it be appropriate to use?

In the later part of 2009, something historic happened relative to Social Security; for the ﬁrst time,

If the economy has a cyclically adjusted budget surplus, this means that

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system

The public debt is held as

Which of the following statements is correct?

The crowding-out effect of expansionary ﬁscal policy suggests that

If the government wishes to increase the level of real GDP, it might reduce

A public debt that is owed to foreigners can be burdensome because

How is the public debt calculated?

Which of the following statements is correct?

Which of the following is a true statement?

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will

Government Spending Tax Revenues GDP Year 1 \ 800 \ 825 \ 4,000 Year 2 850 850 4,200 Year 3 900 875 4,350 Year 4 950 900 4,500 Year 5 1,000 925 4,600 The table contains budget information for a hypothetical economy. All data are in billions of dollars. In which year is there a budget surplus?

The intent of contractionary ﬁscal policy is to

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

Suppose the price level is ﬁxed, the MPC is 0.5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should

The cyclically adjusted surplus in the U.S. went from +1.2 percent of GDP in 2000 to −1.2 percent of GDP in 2002. This suggests that the government during that period

Deﬁne expansionary ﬁscal policy. During which phase of the business cycle would it be appropriate to use?

In the later part of 2009, something historic happened relative to Social Security; for the ﬁrst time,

If the economy has a cyclically adjusted budget surplus, this means that

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system

The public debt is held as

Which of the following statements is correct?

The crowding-out effect of expansionary ﬁscal policy suggests that

If the government wishes to increase the level of real GDP, it might reduce

A public debt that is owed to foreigners can be burdensome because

How is the public debt calculated?

Which of the following statements is correct?

Which of the following is a true statement?

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will

Government Spending Tax Revenues GDP Year 1 \ 800 \ 825 \ 4,000 Year 2 850 850 4,200 Year 3 900 875 4,350 Year 4 950 900 4,500 Year 5 1,000 925 4,600 The table contains budget information for a hypothetical economy. All data are in billions of dollars. In which year is there a budget surplus?

The intent of contractionary ﬁscal policy is to

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