Question 1

Which of the following is true?

Accepted Answer

A)  The federal budget deficit is a flow and so is the national debt. 
B)  The national debt is both a stock and a flow. 
C)  The federal budget deficit is a stock and the national debt is a flow. 
D)  The federal budget deficit is a flow and the national debt is a stock. 
E)  The federal budget deficit is a stock and so is the national debt. 
A)  The federal budget deficit is a flow and so is the national debt. 
B)  The national debt is both a stock and a flow. 
C)  The federal budget deficit is a stock and the national debt is a flow. 
D)  The federal budget deficit is a flow and the national debt is a stock. 
E)  The federal budget deficit is a stock and so is the national debt. D

Question 2

The government can safely take on more debt

Accepted Answer

A)  as long as private firms are taking on more debt 
B)  as long as the debt involves no interest payments 
C)  if GDP is growing faster than the debt is growing 
D)  if the interest rate is below 3 percent 
E)  as long as the debt is growing by less than 3 percent per year 
A)  as long as private firms are taking on more debt 
B)  as long as the debt involves no interest payments 
C)  if GDP is growing faster than the debt is growing 
D)  if the interest rate is below 3 percent 
E)  as long as the debt is growing by less than 3 percent per year C

Question 3

Ricardian equivalence refers to

Accepted Answer

A)  the equivalence of taxes and revenues in fiscal policy. 
B)  the fact the households incorporate inflationary expectations in calculating interest payments. 
C)  the equivalence of imports and exports in an open economy. 
D)  the possibility that households may say save now so that they can pay the higher taxes later if there is a tax cut at the present time which drives up future interest payments. 
E)  none of the above. 
A)  the equivalence of taxes and revenues in fiscal policy. 
B)  the fact the households incorporate inflationary expectations in calculating interest payments. 
C)  the equivalence of imports and exports in an open economy. 
D)  the possibility that households may say save now so that they can pay the higher taxes later if there is a tax cut at the present time which drives up future interest payments. 
E)  none of the above. D

Question 4

Under alternative scenarios,the national debt as a percentage of GDP is projected to rise dramatically.

Accepted Answer

A) True 
 B)False

Question 5

What does it mean for the government to "roll over" its debt?

Accepted Answer

A)  Buying bonds from the public to pay off old bonds 
B)  Continuing to pay interest on old bonds 
C)  Issuing new bonds to pay off old bonds 
D)  Running a budget surplus to pay off old bonds 
E)  Printing money to pay off old bonds. 
A)  Buying bonds from the public to pay off old bonds 
B)  Continuing to pay interest on old bonds 
C)  Issuing new bonds to pay off old bonds 
D)  Running a budget surplus to pay off old bonds 
E)  Printing money to pay off old bonds.

Question 6

Which of the following is most sensitive to fluctuations in GDP?

Accepted Answer

A)  government purchases 
B)  government nonmilitary spending 
C)  transfer payments 
D)  military spending 
E)  interest on the national debt 
A)  government purchases 
B)  government nonmilitary spending 
C)  transfer payments 
D)  military spending 
E)  interest on the national debt

Question 7

Nominal federal spending is a

Accepted Answer

A)  good indicator of how responsibility the federal government is 
B)  good indicator of the overall economy's performance 
C)  measure of the public's concern for the educational needs of the country 
D)  warning sign that our governmental officials are sometimes out of control 
E)  misleading measure of government's effect,unless it is seen in the context of the country's income 
A)  good indicator of how responsibility the federal government is 
B)  good indicator of the overall economy's performance 
C)  measure of the public's concern for the educational needs of the country 
D)  warning sign that our governmental officials are sometimes out of control 
E)  misleading measure of government's effect,unless it is seen in the context of the country's income

Question 8

To be effective,countercyclical fiscal policy must be temporary.

Accepted Answer

A) True 
 B)False

Question 9

Infrastructure projects result in the most value from a fiscal stimulus but a problem is that

Accepted Answer

A)  there are technological issues that need to be solved. 
B)  they are too complex to implement. 
C)  most such projects are "prestige" projects,with little tangible value. 
D)  most such projects do not increase productivity long into the future. 
E)  most such projects are not "shovel ready" when the stimulus is needed. 
A)  there are technological issues that need to be solved. 
B)  they are too complex to implement. 
C)  most such projects are "prestige" projects,with little tangible value. 
D)  most such projects do not increase productivity long into the future. 
E)  most such projects are not "shovel ready" when the stimulus is needed.

Question 10

Trying to project total federal revenues and outlays over the next 50 years represents educated guesses at best.

Accepted Answer

A) True 
 B)False

Question 11

In the short run,the impact of a $50 billion spending package on GDP will be

Accepted Answer

A)  greater than $50 billion because of the multiplier effect 
B)  less than $50 billion because of the tax code 
C)  greater than $50 billion because of the tax code 
D)  exactly $50 billion 
E)  greater than $50 billion because of crowding out. 
A)  greater than $50 billion because of the multiplier effect 
B)  less than $50 billion because of the tax code 
C)  greater than $50 billion because of the tax code 
D)  exactly $50 billion 
E)  greater than $50 billion because of crowding out.

Question 12

In mid-2009,publicly held debt was approaching ______ and total debt was approaching ______ .

Accepted Answer

A)  $1 trillion;$12 trillion. 
B)  $3 trillion;$6 trillion. 
C)  $12 trillion;$7 trillion. 
D)  $7 trillion;$12 trillion. 
E)  $12 trillion;$12 trillion. 
A)  $1 trillion;$12 trillion. 
B)  $3 trillion;$6 trillion. 
C)  $12 trillion;$7 trillion. 
D)  $7 trillion;$12 trillion. 
E)  $12 trillion;$12 trillion.

Question 13

If you divide nominal debt by nominal GDP and real debt by real GDP,you will get two different answers.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the marginal propensity to consume is 0.75.If government purchases increase by $100 billion and the extra expenditure is financed with a net tax of $100 billion,by how much will output change?

Accepted Answer

A)  -$400 billion 
B)  $100 billion 
C)  $400 billion 
D)  $0 
E)  -$100 billion 
A)  -$400 billion 
B)  $100 billion 
C)  $400 billion 
D)  $0 
E)  -$100 billion

Question 15

If the MPC is 0.6 and if government purchases and net taxes both increase by $20 billion,by how much will equilibrium output change?

Accepted Answer

A)  It will increase by $80 billion. 
B)  It will increase by $20 billion. 
C)  It will not change because the changes in government purchases and net taxes will cancel each other out. 
D)  It will decrease by $20 billion. 
E)  It will decrease by $80 billion. 
A)  It will increase by $80 billion. 
B)  It will increase by $20 billion. 
C)  It will not change because the changes in government purchases and net taxes will cancel each other out. 
D)  It will decrease by $20 billion. 
E)  It will decrease by $80 billion.

Question 16

For any change in net taxes,we can calculate the resulting change in equilibrium GDP by using the following formula:

Accepted Answer

A)  change in GDP = -MPC/(1 - MP
C)  
B)  change in GDP = [-MPC/(1 - MP
C) ]× change in taxes 
C)  change in GDP = MPC ×change in taxes 
D)  change in GDP = MPC/(1 - MP
C)  
E)  change in GDP = [-MPC/(1 - MP
C) ] + change in taxes 
A)  change in GDP = -MPC/(1 - MP
C)  
B)  change in GDP = [-MPC/(1 - MP
C) ]× change in taxes 
C)  change in GDP = MPC ×change in taxes 
D)  change in GDP = MPC/(1 - MP
C)  
E)  change in GDP = [-MPC/(1 - MP
C) ] + change in taxes

Question 17

If net taxes decrease by $100 billion and the result is an increase in GDP of $300 billion,what is the marginal propensity to consume?

Accepted Answer

A)  0.75 
B)  3.0 
C)  0.66 
D)  0.50 
E)  0.33 
A)  0.75 
B)  3.0 
C)  0.66 
D)  0.50 
E)  0.33

Question 18

The federal government

Accepted Answer

A)  runs a deficit when tax revenues are greater than government purchases. 
B)  runs a surplus when tax revenues are smaller than government purchases. 
C)  runs a deficit when tax revenues are greater than government outlays. 
D)  runs a surplus when tax revenues are greater than government outlays. 
E)  runs a surplus when tax revenues are smaller than transfer payments.. 
A)  runs a deficit when tax revenues are greater than government purchases. 
B)  runs a surplus when tax revenues are smaller than government purchases. 
C)  runs a deficit when tax revenues are greater than government outlays. 
D)  runs a surplus when tax revenues are greater than government outlays. 
E)  runs a surplus when tax revenues are smaller than transfer payments..

Question 19

Under what condition can the U.S.government continue to pay interest on a rising debt without eventually needing to increase the average tax rate?

Accepted Answer

A)  If the national debt grows at the same rate as nominal GDP 
B)  If the nominal interest on the national debt grows faster than nominal GDP 
C)  If the total interest payments on the national debt grow faster than nominal GDP 
D)  If the national debt grows faster than nominal GDP 
E)  If the real interest on the national debt grows faster than real GDP. 
A)  If the national debt grows at the same rate as nominal GDP 
B)  If the nominal interest on the national debt grows faster than nominal GDP 
C)  If the total interest payments on the national debt grow faster than nominal GDP 
D)  If the national debt grows faster than nominal GDP 
E)  If the real interest on the national debt grows faster than real GDP.

Question 20

Which factors led to the large rise in the government's budget deficit in the early 1980s?

Accepted Answer

A)  The Clinton Administration's health care program 
B)  A cutback in military spending 
C)  An income tax increase 
D)  A build up in military spending 
E)  A large and unprecedented economic expansion. 
A)  The Clinton Administration's health care program 
B)  A cutback in military spending 
C)  An income tax increase 
D)  A build up in military spending 
E)  A large and unprecedented economic expansion.

Which of the following is true?

The government can safely take on more debt

Ricardian equivalence refers to

Under alternative scenarios,the national debt as a percentage of GDP is projected to rise dramatically.

What does it mean for the government to "roll over" its debt?

Which of the following is most sensitive to fluctuations in GDP?

Nominal federal spending is a

To be effective,countercyclical fiscal policy must be temporary.

Infrastructure projects result in the most value from a fiscal stimulus but a problem is that

Trying to project total federal revenues and outlays over the next 50 years represents educated guesses at best.

In the short run,the impact of a $50 billion spending package on GDP will be

In mid-2009,publicly held debt was approaching and total debt was approaching .

If you divide nominal debt by nominal GDP and real debt by real GDP,you will get two different answers.

Suppose the marginal propensity to consume is 0.75.If government purchases increase by $100 billion and the extra expenditure is financed with a net tax of $100 billion,by how much will output change?

If the MPC is 0.6 and if government purchases and net taxes both increase by $20 billion,by how much will equilibrium output change?

For any change in net taxes,we can calculate the resulting change in equilibrium GDP by using the following formula:

If net taxes decrease by $100 billion and the result is an increase in GDP of $300 billion,what is the marginal propensity to consume?

The federal government

Under what condition can the U.S.government continue to pay interest on a rising debt without eventually needing to increase the average tax rate?

Which factors led to the large rise in the government's budget deficit in the early 1980s?

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters

Exam 12: Fiscal Policy

Which of the following is true?

The government can safely take on more debt

Ricardian equivalence refers to

Under alternative scenarios,the national debt as a percentage of GDP is projected to rise dramatically.

What does it mean for the government to "roll over" its debt?

Which of the following is most sensitive to fluctuations in GDP?

Nominal federal spending is a

To be effective,countercyclical fiscal policy must be temporary.

Infrastructure projects result in the most value from a fiscal stimulus but a problem is that

Trying to project total federal revenues and outlays over the next 50 years represents educated guesses at best.

In the short run,the impact of a $50 billion spending package on GDP will be

In mid-2009,publicly held debt was approaching ______ and total debt was approaching ______ .

If you divide nominal debt by nominal GDP and real debt by real GDP,you will get two different answers.

Suppose the marginal propensity to consume is 0.75.If government purchases increase by $100 billion and the extra expenditure is financed with a net tax of $100 billion,by how much will output change?

If the MPC is 0.6 and if government purchases and net taxes both increase by $20 billion,by how much will equilibrium output change?

For any change in net taxes,we can calculate the resulting change in equilibrium GDP by using the following formula:

If net taxes decrease by $100 billion and the result is an increase in GDP of $300 billion,what is the marginal propensity to consume?

The federal government

Under what condition can the U.S.government continue to pay interest on a rising debt without eventually needing to increase the average tax rate?

Which factors led to the large rise in the government's budget deficit in the early 1980s?

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters

In mid-2009,publicly held debt was approaching and total debt was approaching .