Question 1

Refer to the diagram. If the full-employment level of GDP is D, then it would be appropriate ﬁscal policy for government to

Accepted Answer

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

Question 2

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that
ﬁscal policy has turned more contractionary.

Accepted Answer

A) True 
 B)False

Question 3

Explain the crowding-out effect.

Accepted Answer

The crowding-out effect occurs when expa

Question 4

Accepted Answer

A)  move the economy from point B towards point A 
B)  move the economy from point B towards point C 
C)  move the economy from point B downward along AD $\mathrm { AD } _ { 2 }$ 
D)  move the economy from point B upward along AD $\mathrm { AD } _ { 2 }$ 
A)  move the economy from point B towards point A 
B)  move the economy from point B towards point C 
C)  move the economy from point B downward along AD $\mathrm { AD } _ { 2 }$ 
D)  move the economy from point B upward along AD $\mathrm { AD } _ { 2 }$

Question 5

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

Accepted Answer

A)  actual budget deﬁcit exceeds the cyclically adjusted budget deﬁcit. 
B)  actual budget deﬁcit is less than the cyclically adjusted budget deﬁcit. 
C)  cyclically adjusted deﬁcit exceeds the cyclical deﬁcit. 
D)  cyclical deﬁcit exceeds the cyclically adjusted deﬁcit. 
A)  actual budget deﬁcit exceeds the cyclically adjusted budget deﬁcit. 
B)  actual budget deﬁcit is less than the cyclically adjusted budget deﬁcit. 
C)  cyclically adjusted deﬁcit exceeds the cyclical deﬁcit. 
D)  cyclical deﬁcit exceeds the cyclically adjusted deﬁcit.

Question 6

Actions by the federal government that decrease the progressivity of the tax system

Accepted Answer

A)  decrease the amount of government spending. 
B)  increase the effect of automatic stabilizers. 
C)  decrease the effect of automatic stabilizers. 
D)  increase the multiplier effect. 
A)  decrease the amount of government spending. 
B)  increase the effect of automatic stabilizers. 
C)  decrease the effect of automatic stabilizers. 
D)  increase the multiplier effect.

Question 7

When current tax revenues exceed current government expenditures and the economy is achieving full employment,

Accepted Answer

A)  the cyclically adjusted budget has neither a deﬁcit nor a surplus. 
B)  the cyclically adjusted budget may have either a deﬁcit or a surplus. 
C)  the cyclically adjusted budget has a surplus. 
D)  the government is engaging in an expansionary ﬁscal policy. 
A)  the cyclically adjusted budget has neither a deﬁcit nor a surplus. 
B)  the cyclically adjusted budget may have either a deﬁcit or a surplus. 
C)  the cyclically adjusted budget has a surplus. 
D)  the government is engaging in an expansionary ﬁscal policy.

Question 8

Accepted Answer

A)  the shift of curve $T _ { 1 } \text { to } T _ { 2 }$ 
B)  the shift of curve $T _ { 2 } \text { to } T _ { 1 } \text {. }$ 
C)  a movement from a to c along curve $T _ { 2 }$ 
D)  a movement from d to b along curve $T _ { 1 } .$ 
A)  the shift of curve $T _ { 1 } \text { to } T _ { 2 }$ 
B)  the shift of curve $T _ { 2 } \text { to } T _ { 1 } \text {. }$ 
C)  a movement from a to c along curve $T _ { 2 }$ 
D)  a movement from d to b along curve $T _ { 1 } .$

Question 9

If Congress adjusted the U.S. tax system so that the MPC was reduced, the

Accepted Answer

A)  economy would become more inﬂation prone. 
B)  economy would become less stable. 
C)  stability of the economy would be unaffected. 
D)  economy would become more stable. 
A)  economy would become more inﬂation prone. 
B)  economy would become less stable. 
C)  stability of the economy would be unaffected. 
D)  economy would become more stable.

Question 10

The ﬂexibility of the price level tends to dampen the multiplier effect of ﬁscal policy.

Accepted Answer

A) True 
 B)False

Question 11

If the economy is in a recession and prices are relatively stable, then the discretionary ﬁscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be

Accepted Answer

A)  increased government spending or increased taxation, or a combination of the two actions. 
B)  increased government spending or decreased taxation, or a combination of the two actions. 
C)  increased government spending or increased taxation, but not a combination of the two actions. 
D)  decreased government spending or decreased taxation, or a combination of the two actions. 
A)  increased government spending or increased taxation, or a combination of the two actions. 
B)  increased government spending or decreased taxation, or a combination of the two actions. 
C)  increased government spending or increased taxation, but not a combination of the two actions. 
D)  decreased government spending or decreased taxation, or a combination of the two actions.

Question 12

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. This diagram portrays the idea of

Accepted Answer

A)  progressive taxation. 
B)  built-in stability. 
C)  the multiplier. 
D)  discretionary ﬁscal policy. 
A)  progressive taxation. 
B)  built-in stability. 
C)  the multiplier. 
D)  discretionary ﬁscal policy.

Question 13

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 14

$$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Actual Budget, Percent of GDP } \
\text { (-deficits, +surpluses) }
\end{array} & \begin{array} { c } 
\text { Cyclically-Adjusted Budget, Percent of GDP } \
\text { (-deficits, +surpluses) }
\end{array} \
\hline 1 & 0 & 0 \
\hline 2 & - 3 & 0 \
\hline 3 & - 5 & - 2 \
\hline 4 & - 2 & - 2 \
\hline 5 & + 2 & + 1 \
\hline
\end{array}$$ Refer to the data for a ?ctional economy. The changes in the budget conditions between Year 1 and 2 best re?ect

Accepted Answer

A)  demand-pull in?ation. 
B)  an expansionary ?scal policy. 
C)  a recession. 
D)  a contractionary ?scal policy. 
A)  demand-pull in?ation. 
B)  an expansionary ?scal policy. 
C)  a recession. 
D)  a contractionary ?scal policy.

Question 15

Which of the following is not a similarity between Medicare and Social Security?

Accepted Answer

A)  They are both "pay-as-you-go" plans. 
B)  Their trust funds are both projected to be depleted within the next 15 years. 
C)  Contributions are collected from both employers and employees. 
D)  They are both intended to beneﬁt older current workers. 
A)  They are both "pay-as-you-go" plans. 
B)  Their trust funds are both projected to be depleted within the next 15 years. 
C)  Contributions are collected from both employers and employees. 
D)  They are both intended to beneﬁt older current workers.

Question 16

Which of the following ﬁscal policy changes would be the most contractionary?

Accepted Answer

A)  a $40 billion increase in taxes 
B)  a $10 billion increase in taxes and a $30 billion cut in government spending 
C)  a $20 billion increase in taxes and a $20 billion cut in government spending 
D)  a $30 billion increase in taxes and a $10 billion cut in government spending 
A)  a $40 billion increase in taxes 
B)  a $10 billion increase in taxes and a $30 billion cut in government spending 
C)  a $20 billion increase in taxes and a $20 billion cut in government spending 
D)  a $30 billion increase in taxes and a $10 billion cut in government spending

Question 17

The public debt is the

Accepted Answer

A)  amount of U.S. paper currency in circulation. 
B)  ratio of all past deﬁcits to all past surpluses. 
C)  accumulation of all past deﬁcits minus all past surpluses. 
D)  difference between current government expenditures and current tax revenues. 
A)  amount of U.S. paper currency in circulation. 
B)  ratio of all past deﬁcits to all past surpluses. 
C)  accumulation of all past deﬁcits minus all past surpluses. 
D)  difference between current government expenditures and current tax revenues.

Question 18

Built-in stability is synonymous with discretionary ﬁscal policy.

Accepted Answer

A) True 
 B)False

Question 19

The U.S. public debt

Accepted Answer

A)  refers to the debts of all units of government-federal, state, and local. 
B)  consists of the total debt of U.S. households, businesses, and government. 
C)  refers to the collective amount that U.S. citizens and businesses owe to foreigners. 
D)  consists of the historical accumulation of all past federal deﬁcits and surpluses. 
A)  refers to the debts of all units of government-federal, state, and local. 
B)  consists of the total debt of U.S. households, businesses, and government. 
C)  refers to the collective amount that U.S. citizens and businesses owe to foreigners. 
D)  consists of the historical accumulation of all past federal deﬁcits and surpluses.

Question 20

Refer to the graph. Automatic stability in this economy could be enhanced by

Accepted Answer

A)  changing the tax system so that the tax line has a steeper slope. 
B)  changing the tax system so that the tax line is shifted upward but parallel to its present position. 
C)  changing the government expenditures line so that it has a positive slope. 
D)  changing the tax system so that the tax line has a ﬂatter slope. 
A)  changing the tax system so that the tax line has a steeper slope. 
B)  changing the tax system so that the tax line is shifted upward but parallel to its present position. 
C)  changing the government expenditures line so that it has a positive slope. 
D)  changing the tax system so that the tax line has a ﬂatter slope.

Refer to the diagram. If the full-employment level of GDP is D, then it would be appropriate ﬁscal policy for government to

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that ﬁscal policy has turned more contractionary.

Explain the crowding-out effect.

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

Actions by the federal government that decrease the progressivity of the tax system

When current tax revenues exceed current government expenditures and the economy is achieving full employment,

If Congress adjusted the U.S. tax system so that the MPC was reduced, the

The ﬂexibility of the price level tends to dampen the multiplier effect of ﬁscal policy.

If the economy is in a recession and prices are relatively stable, then the discretionary ﬁscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. This diagram portrays the idea of

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

Year Actual Budget, Percent of GDP (-deficits, +surpluses) Cyclically-Adjusted Budget, Percent of GDP (-deficits, +surpluses) 1 0 0 2 -3 0 3 -5 -2 4 -2 -2 5 +2 +1 Refer to the data for a ?ctional economy. The changes in the budget conditions between Year 1 and 2 best re?ect

Which of the following is not a similarity between Medicare and Social Security?

Which of the following ﬁscal policy changes would be the most contractionary?

The public debt is the

Built-in stability is synonymous with discretionary ﬁscal policy.

The U.S. public debt

Refer to the graph. Automatic stability in this economy could be enhanced 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

Refer to the diagram. If the full-employment level of GDP is D, then it would be appropriate ﬁscal policy for government to

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that ﬁscal policy has turned more contractionary.

Explain the crowding-out effect.

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

Actions by the federal government that decrease the progressivity of the tax system

When current tax revenues exceed current government expenditures and the economy is achieving full employment,

If Congress adjusted the U.S. tax system so that the MPC was reduced, the

The ﬂexibility of the price level tends to dampen the multiplier effect of ﬁscal policy.

If the economy is in a recession and prices are relatively stable, then the discretionary ﬁscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. This diagram portrays the idea of

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

Year Actual Budget, Percent of GDP (-deficits, +surpluses) Cyclically-Adjusted Budget, Percent of GDP (-deficits, +surpluses) 1 0 0 2 -3 0 3 -5 -2 4 -2 -2 5 +2 +1 Refer to the data for a ?ctional economy. The changes in the budget conditions between Year 1 and 2 best re?ect

Which of the following is not a similarity between Medicare and Social Security?

Which of the following ﬁscal policy changes would be the most contractionary?

The public debt is the

Built-in stability is synonymous with discretionary ﬁscal policy.

The U.S. public debt

Refer to the graph. Automatic stability in this economy could be enhanced 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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