Question 1

A bill incorporating a major tax change

Accepted Answer

A)  is first considered by the House Ways and Means Committee. 
B)  is considered by the House after it is approved by the Senate. 
C)  may be vetoed by the central bank. 
D)  is sent to a conference committee when differences exist between Congress and the president. 
E)  need be passed only by the House if the two legislative branches cannot agree. 
A)  is first considered by the House Ways and Means Committee. 
B)  is considered by the House after it is approved by the Senate. 
C)  may be vetoed by the central bank. 
D)  is sent to a conference committee when differences exist between Congress and the president. 
E)  need be passed only by the House if the two legislative branches cannot agree.

Question 2

The difference between tax revenues and government expenditures that would result if GDP were at its potential level is called the

Accepted Answer

A)  permanent income budget balance. 
B)  net relative expenditure differential. 
C)  Ricardian equivalence. 
D)  balanced budget shortfall. 
E)  structural deficit. 
A)  permanent income budget balance. 
B)  net relative expenditure differential. 
C)  Ricardian equivalence. 
D)  balanced budget shortfall. 
E)  structural deficit.

Question 3

An increase in the structural deficit most likely reflects the fact that fiscal policy is

Accepted Answer

A)  having little or no impact on the economy. 
B)  effectively reducing the size of the national debt. 
C)  becoming more expansionary. 
D)  creating a substantial gap between potential and full-employment GDP. 
E)  causing the price level to fall. 
A)  having little or no impact on the economy. 
B)  effectively reducing the size of the national debt. 
C)  becoming more expansionary. 
D)  creating a substantial gap between potential and full-employment GDP. 
E)  causing the price level to fall.

Question 4

In his first year in office,President Clinton's fiscal policy proposals led to

Accepted Answer

A)  a middle-class tax cut. 
B)  an upper-income tax increase. 
C)  significant increases in social welfare spending programs. 
D)  higher taxes on imported goods to promote increased employment in the United States. 
E)  a balanced federal budget for the first time in 25 years. 
A)  a middle-class tax cut. 
B)  an upper-income tax increase. 
C)  significant increases in social welfare spending programs. 
D)  higher taxes on imported goods to promote increased employment in the United States. 
E)  a balanced federal budget for the first time in 25 years.

Question 5

How did the proposed fiscal policies of President Eisenhower and President Nixon differ?

Accepted Answer

A)  Eisenhower felt unemployment was the most pressing economic problem of the time; Nixon saw inflation as more serious. 
B)  Nixon favored a balanced budget; Eisenhower did not. 
C)  Nixon favored strong growth in the economy; Eisenhower wanted to create a budget surplus. 
D)  Eisenhower was a strong believer in the use of fiscal policy to influence the economy; Nixon had a laissez-faire attitude. 
E)  They both favored the same fiscal policies but differed on monetary policy. 
A)  Eisenhower felt unemployment was the most pressing economic problem of the time; Nixon saw inflation as more serious. 
B)  Nixon favored a balanced budget; Eisenhower did not. 
C)  Nixon favored strong growth in the economy; Eisenhower wanted to create a budget surplus. 
D)  Eisenhower was a strong believer in the use of fiscal policy to influence the economy; Nixon had a laissez-faire attitude. 
E)  They both favored the same fiscal policies but differed on monetary policy.

Question 6

In the 1980s and early 1990s the annual federal budget deficit was ________ percent of GDP.

Accepted Answer

A)  less than 1 
B)  1 to 3 
C)  3 to 6 
D)  slightly under 10 
E)  over 50 
A)  less than 1 
B)  1 to 3 
C)  3 to 6 
D)  slightly under 10 
E)  over 50

Question 7

The budget policy that requires revenues to equal expenditures each and every year is called

Accepted Answer

A)  an annually balanced budget. 
B)  functional finance. 
C)  a full-employment budget. 
D)  a conflict resolution budget. 
E)  a budget balanced over the course of the business cycle. 
A)  an annually balanced budget. 
B)  functional finance. 
C)  a full-employment budget. 
D)  a conflict resolution budget. 
E)  a budget balanced over the course of the business cycle.

Question 8

The idea that,under certain circumstances,deficits can increase investment is known as

Accepted Answer

A)  the structural deficit. 
B)  the crowd-out effect. 
C)  structural unemployment. 
D)  the crowd-in effect. 
E)  the Laffer effect. 
A)  the structural deficit. 
B)  the crowd-out effect. 
C)  structural unemployment. 
D)  the crowd-in effect. 
E)  the Laffer effect.

Question 9

The structural deficit is

Accepted Answer

A)  the deficit necessary to reduce interest rates. 
B)  the difference between tax revenues and government expenditures in a given year. 
C)  the difference between tax revenues and government expenditures that would result if GDP were at its potential level. 
D)  the budget resulting from a policy of functional finance. 
E)  a concept first suggested by John Maynard Keynes in 1938. 
A)  the deficit necessary to reduce interest rates. 
B)  the difference between tax revenues and government expenditures in a given year. 
C)  the difference between tax revenues and government expenditures that would result if GDP were at its potential level. 
D)  the budget resulting from a policy of functional finance. 
E)  a concept first suggested by John Maynard Keynes in 1938.

Question 10

When evaluating the size of the annual federal budget deficit,it is useful to express it as a percentage of the

Accepted Answer

A)  average deficit in other countries. 
B)  level of net exports. 
C)  economy's GDP. 
D)  amount of government spending minus income. 
E)  assets of the commercial banking system. 
A)  average deficit in other countries. 
B)  level of net exports. 
C)  economy's GDP. 
D)  amount of government spending minus income. 
E)  assets of the commercial banking system.

Question 11

-Which of the following countries in the table above has the most burdensome budget deficit?

Accepted Answer

A)  Country A 
B)  Country B 
C)  Country C 
D)  Country D 
E)  Country E 
A)  Country A 
B)  Country B 
C)  Country C 
D)  Country D 
E)  Country E

Question 12

A tax bill passed by Congress

Accepted Answer

A)  automatically becomes law. 
B)  may still be vetoed by the president. 
C)  must still go to the Internal Revenue for approval. 
D)  cannot be amended in any way, whether it becomes law or not. 
E)  is administered by the Federal Reserve System. 
A)  automatically becomes law. 
B)  may still be vetoed by the president. 
C)  must still go to the Internal Revenue for approval. 
D)  cannot be amended in any way, whether it becomes law or not. 
E)  is administered by the Federal Reserve System.

Question 13

The crowding-out effect

Accepted Answer

A)  is a basic tenet of Keynesian analysis. 
B)  occurs when people expect prices to rise as a result of stabilization policy and take measures to raise their wages. 
C)  asserts that expansionary fiscal policy will bid up interest rates and reduce private spending. 
D)  asserts that an increase in aggregate supply will force down price levels and reduce competition for output by households and businesses. 
E)  states that increasing the money supply will lower interest rates, making it impossible for some borrowers to obtain adequate funds. 
A)  is a basic tenet of Keynesian analysis. 
B)  occurs when people expect prices to rise as a result of stabilization policy and take measures to raise their wages. 
C)  asserts that expansionary fiscal policy will bid up interest rates and reduce private spending. 
D)  asserts that an increase in aggregate supply will force down price levels and reduce competition for output by households and businesses. 
E)  states that increasing the money supply will lower interest rates, making it impossible for some borrowers to obtain adequate funds.

Question 14

When the government finances its expenditures by borrowing from consumers and business firms

Accepted Answer

A)  it creates a surplus. 
B)  it is more inflationary than if it borrows from the central bank. 
C)  it creates new money, making the deficit greater than it would otherwise have been. 
D)  the national debt goes down. 
E)  interest rates rise, reducing private investment spending. 
A)  it creates a surplus. 
B)  it is more inflationary than if it borrows from the central bank. 
C)  it creates new money, making the deficit greater than it would otherwise have been. 
D)  the national debt goes down. 
E)  interest rates rise, reducing private investment spending.

Question 15

If the government goes into the credit market to finance a current budget deficit,the

Accepted Answer

A)  quantity supplied of loanable funds will fall. 
B)  interest rate will fall. 
C)  Treasury must print more currency. 
D)  private sector borrowing will also increase to pay for the bonds. 
E) demand curve for loanable funds will shift to the right. 
A)  quantity supplied of loanable funds will fall. 
B)  interest rate will fall. 
C)  Treasury must print more currency. 
D)  private sector borrowing will also increase to pay for the bonds. 
E) demand curve for loanable funds will shift to the right.

Question 16

Balancing the government's budget every year

Accepted Answer

A)  is necessary because all debts eventually come due. 
B)  is a fundamental tenet of Keynesian economics. 
C)  is sensible for the same reasons as is balancing the family budget. 
D)  makes it difficult to use fiscal policy to stabilize the economy. 
E)  results in simultaneous inflation and unemployment. 
A)  is necessary because all debts eventually come due. 
B)  is a fundamental tenet of Keynesian economics. 
C)  is sensible for the same reasons as is balancing the family budget. 
D)  makes it difficult to use fiscal policy to stabilize the economy. 
E)  results in simultaneous inflation and unemployment.

Question 17

The federal budget surpluses experienced at the turn of the twenty-first century disappeared largely because of

Accepted Answer

A)  multiyear tax cuts in 2001 and 2003. 
B)  federal spending on homeland security. 
C)  the war and reconstruction of Iraq. 
D)  the recession of 2001. 
E)  all of the above, which contributed to the return of federal budget deficits. 
A)  multiyear tax cuts in 2001 and 2003. 
B)  federal spending on homeland security. 
C)  the war and reconstruction of Iraq. 
D)  the recession of 2001. 
E)  all of the above, which contributed to the return of federal budget deficits.

Question 18

A budget deficit has its inflationary impact reduced by

Accepted Answer

A)  borrowing from the public. 
B)  creating new money. 
C)  borrowing from the central bank. 
D)  simultaneously reducing taxes. 
E)  raising the national debt. 
A)  borrowing from the public. 
B)  creating new money. 
C)  borrowing from the central bank. 
D)  simultaneously reducing taxes. 
E)  raising the national debt.

Question 19

The budget policy that sets the government's budget to attain a socially optimal combination of unemployment and inflation is likely to

Accepted Answer

A)  be balanced each and every year. 
B)  cause continual growth in the public debt. 
C)  have a cyclically adjusted surplus. 
D)  run surpluses even when unemployment is high. 
E)  be balanced over the course of the business cycle. 
A)  be balanced each and every year. 
B)  cause continual growth in the public debt. 
C)  have a cyclically adjusted surplus. 
D)  run surpluses even when unemployment is high. 
E)  be balanced over the course of the business cycle.

Question 20

-If S is the supply curve of loanable funds,D₁ is the demand curve for loanable funds before government borrowing,and D₂ is the demand curve for loanable funds after government borrowing,the size of the government deficit must be ________ billion.

Accepted Answer

A)  $800 
B)  $700 
C)  $500 
D)  $300 
E)  $100 
A)  $800 
B)  $700 
C)  $500 
D)  $300 
E)  $100

Exam 24: Surpluses,deficits,public Debt,and the Federal Budget

A bill incorporating a major tax change

The difference between tax revenues and government expenditures that would result if GDP were at its potential level is called the

An increase in the structural deficit most likely reflects the fact that fiscal policy is

In his first year in office,President Clinton's fiscal policy proposals led to

How did the proposed fiscal policies of President Eisenhower and President Nixon differ?

In the 1980s and early 1990s the annual federal budget deficit was ________ percent of GDP.

The budget policy that requires revenues to equal expenditures each and every year is called

The idea that,under certain circumstances,deficits can increase investment is known as

The structural deficit is

When evaluating the size of the annual federal budget deficit,it is useful to express it as a percentage of the

-Which of the following countries in the table above has the most burdensome budget deficit?

A tax bill passed by Congress

The crowding-out effect

When the government finances its expenditures by borrowing from consumers and business firms

If the government goes into the credit market to finance a current budget deficit,the

Balancing the government's budget every year

The federal budget surpluses experienced at the turn of the twenty-first century disappeared largely because of

A budget deficit has its inflationary impact reduced by

The budget policy that sets the government's budget to attain a socially optimal combination of unemployment and inflation is likely to

-If S is the supply curve of loanable funds,D₁ is the demand curve for loanable funds before government borrowing,and D₂ is the demand curve for loanable funds after government borrowing,the size of the government deficit must be ________ billion.

What is Economics

Markets and Prices

The Business Firm: Organization,motivation,and Optimal Input Decisions

Getting Behind the Demand and Supply Curves

Market Demand and Price Elasticity

Economic Efficiency,market Supply,and Perfect Competition

Monopoly and Its Regulation

Monopolistic Competition,oligopoly,and Antitrust Policy

Pollution and the Environment

The Supply and Demand for Labor

Interest,rent,and Profit

Poverty,income Inequality,and Discrimination

Economic Growth

Public Goods and the Role of the Government

National Income and Product

Business Fluctuations and Unemployment

The Determination of National Output and the Keynesian Multiplier

Fiscal Policy and National Output

Inflation

Money and the Banking System

The Federal Reserve and Monetary Policy

Supply Shocks and Inflation

Productivity,growth,and Technology Policy

Monetary Policy,interest Rates,and Economic Activity

Controversies Over Stabilization Policy

International Trade

Exchange Rates and the Balance of Payments

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