Question 1

The most likely way the public debt burdens future generations, if at all, is by

Accepted Answer

A)  reducing the current level of investment. 
B)  causing future unemployment. 
C)  causing deﬂation. 
D)  reducing real interest rates. 
A)  reducing the current level of investment. 
B)  causing future unemployment. 
C)  causing deﬂation. 
D)  reducing real interest rates.

Question 2

If you were told that the government had an actual budget deﬁcit of $50 billion, then you would

Accepted Answer

A)  know that ﬁscal policy was expansionary. 
B)  know that ﬁscal policy was contractionary. 
C)  know that ﬁscal policy was producing a cyclical deﬁcit. 
D)  not be able to determine the direction of ﬁscal policy from the information given. 
A)  know that ﬁscal policy was expansionary. 
B)  know that ﬁscal policy was contractionary. 
C)  know that ﬁscal policy was producing a cyclical deﬁcit. 
D)  not be able to determine the direction of ﬁscal policy from the information given.

Question 3

The largest proportion of the U.S. public debt is held by

Accepted Answer

A)  the U.S. public (individuals, businesses, ﬁnancial institutions, and government). 
B)  foreign individuals and institutions. 
C)  the Federal Reserve System. 
D)  U.S. government agencies. 
A)  the U.S. public (individuals, businesses, ﬁnancial institutions, and government). 
B)  foreign individuals and institutions. 
C)  the Federal Reserve System. 
D)  U.S. government agencies.

Question 4

A budget surplus means that

Accepted Answer

A)  government expenditures are greater than revenues in a given year. 
B)  government revenues are greater than expenditures in a given year. 
C)  a nation's exports are greater than its imports. 
D)  a nation's imports are greater than its exports. 
A)  government expenditures are greater than revenues in a given year. 
B)  government revenues are greater than expenditures in a given year. 
C)  a nation's exports are greater than its imports. 
D)  a nation's imports are greater than its exports.

Question 5

Tax revenues automatically increase during economic expansions and decrease during recessions.

Accepted Answer

A) True 
 B)False

Question 6

Recessions have contributed to the public debt by

Accepted Answer

A)  reducing national income and therefore tax revenues. 
B)  increasing real interest rates. 
C)  increasing the international value of the dollar. 
D)  increasing national saving. 
A)  reducing national income and therefore tax revenues. 
B)  increasing real interest rates. 
C)  increasing the international value of the dollar. 
D)  increasing national saving.

Question 7

$$\begin{array} { | l | c | } 
\hline \text { Security } & \text { Amount (in Billions) } \
\hline \text { Treasury Bills } & \$ 220 \
\hline \text { Corporate Bonds } & 140 \
\hline \text { Treasury Notes } & 80 \
\hline \text { Corporate Stock } & 200 \
\hline \text { US Savings Bonds } & 60 \
\hline \text { Treasury Bonds } & 100 \
\hline
\end{array}$$ The public debt for the economy is

Accepted Answer

A)  $540 billion. 
B)  $400 billion. 
C)  $580 billion. 
D)  $460 billion. 
A)  $540 billion. 
B)  $400 billion. 
C)  $580 billion. 
D)  $460 billion.

Question 8

The operational lag of ﬁscal policy refers to the time that elapses between the beginning of a recession
or inﬂation and the certain awareness that it is actually happening.

Accepted Answer

A) True 
 B)False

Question 9

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inﬂation. If the MPS is 0.25, then it could

Accepted Answer

A)  increase taxes by $16 billion. 
B)  increase taxes by $24 billion. 
C)  decrease government spending by $10 billion. 
D)  decrease government spending by $16 billion. 
A)  increase taxes by $16 billion. 
B)  increase taxes by $24 billion. 
C)  decrease government spending by $10 billion. 
D)  decrease government spending by $16 billion.

Question 10

The United States has experienced both budget surpluses and deﬁcits since 2000.

Accepted Answer

A) True 
 B)False

Question 11

The effect of contractionary ﬁscal policy is shown as a

Accepted Answer

A)  rightward shift in the economy's aggregate demand curve. 
B)  rightward shift in the economy's aggregate supply curve. 
C)  movement along an existing aggregate demand curve. 
D)  leftward shift in the economy's aggregate demand curve. 
A)  rightward shift in the economy's aggregate demand curve. 
B)  rightward shift in the economy's aggregate supply curve. 
C)  movement along an existing aggregate demand curve. 
D)  leftward shift in the economy's aggregate demand curve.

Question 12

Expansionary ﬁscal policy is so named because it involves an expansion of the nation's money supply.

Accepted Answer

A) True 
 B)False

Question 13

Suppose the price level is ﬁxed, the MPC is 0.8, and the GDP gap is a negative $200 billion. To achieve full-employment output (exactly), government should

Accepted Answer

A)  increase government expenditures by $200 billion. 
B)  reduce taxes by $200 billion. 
C)  increase government expenditures by $40 billion. 
D)  reduce taxes by $160 billion. 
A)  increase government expenditures by $200 billion. 
B)  reduce taxes by $200 billion. 
C)  increase government expenditures by $40 billion. 
D)  reduce taxes by $160 billion.

Question 14

The total amount of debt owed by the federal government is represented by the total value of the outstanding

Accepted Answer

A)  U.S. government securities. 
B)  Federal Reserve notes. 
C)  bank loans and deposits. 
D)  stocks and bonds. 
A)  U.S. government securities. 
B)  Federal Reserve notes. 
C)  bank loans and deposits. 
D)  stocks and bonds.

Question 15

The United States has experienced both budget surpluses and deﬁcits since 2000.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  public debt. 
B)  budget deﬁcit. 
C)  full employment. 
D)  GDP gap. 
A)  public debt. 
B)  budget deﬁcit. 
C)  full employment. 
D)  GDP gap.

Question 17

Contractionary ﬁscal policy would tend to make a budget deﬁcit become

Accepted Answer

A)  bigger. 
B)  smaller. 
C)  a trade deﬁcit. 
D)  a trade surplus. 
A)  bigger. 
B)  smaller. 
C)  a trade deﬁcit. 
D)  a trade surplus.

Question 18

Can the large public debt cause the nation to go bankrupt? Explain.

Accepted Answer

The two reasons that the public debt wil

Question 19

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

Accepted Answer

A)  Year 1 to 2. 
B)  Year 6 to 7. 
C)  Year 4 to 5. 
D)  Year 5 to 6. 
A)  Year 1 to 2. 
B)  Year 6 to 7. 
C)  Year 4 to 5. 
D)  Year 5 to 6.

Question 20

The concept of a "political business cycle" implies a misuse of ﬁscal policy making it a source of
economic instability.

Accepted Answer

A) True 
 B)False

Exam 13: Fiscal Policy, Deficits, and Debt

The most likely way the public debt burdens future generations, if at all, is by

If you were told that the government had an actual budget deﬁcit of $50 billion, then you would

The largest proportion of the U.S. public debt is held by

A budget surplus means that

Tax revenues automatically increase during economic expansions and decrease during recessions.

Recessions have contributed to the public debt by

Security Amount (in Billions) Treasury Bills \ 220 Corporate Bonds 140 Treasury Notes 80 Corporate Stock 200 US Savings Bonds 60 Treasury Bonds 100 The public debt for the economy is

The operational lag of ﬁscal policy refers to the time that elapses between the beginning of a recession or inﬂation and the certain awareness that it is actually happening.

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inﬂation. If the MPS is 0.25, then it could

The United States has experienced both budget surpluses and deﬁcits since 2000.

The effect of contractionary ﬁscal policy is shown as a

Expansionary ﬁscal policy is so named because it involves an expansion of the nation's money supply.

Suppose the price level is ﬁxed, the MPC is 0.8, and the GDP gap is a negative $200 billion. To achieve full-employment output (exactly), government should

The total amount of debt owed by the federal government is represented by the total value of the outstanding

The United States has experienced both budget surpluses and deﬁcits since 2000.

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

Contractionary ﬁscal policy would tend to make a budget deﬁcit become

Can the large public debt cause the nation to go bankrupt? Explain.

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 expansionary from

The concept of a "political business cycle" implies a misuse of ﬁscal policy making it a source of economic instability.

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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