Question 1

A possible budget reform involves _____

Accepted Answer

A)  adopting a quadrennial budget. 
B)  breaking down the budget into increasingly small budget lines. 
C)  appointing agency heads with different priorities than those of elected representatives. 
D)  simplifying the budget document by concentrating only on major groupings and eliminating line items. 
E)  eliminating the operating budget. 
A)  adopting a quadrennial budget. 
B)  breaking down the budget into increasingly small budget lines. 
C)  appointing agency heads with different priorities than those of elected representatives. 
D)  simplifying the budget document by concentrating only on major groupings and eliminating line items. 
E)  eliminating the operating budget.

Question 2

The functional finance philosophy is based on the idea that balancing the federal budget is less important than using it to promote an economy operating at its potential.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following correctly describes the trend in the federal budget during the 1980s?

Accepted Answer

A)  Federal spending declined relative to GDP, while federal revenues rose relative to GDP. 
B)  Federal spending rose relative to GDP, while federal revenues declined relative to GDP. 
C)  Balanced budgets were passed through cooperation between the president and Congress. 
D)  The dollar depreciated, thereby lowering the budget deficit. 
E)  The budget deficit decreased and then disappeared, turning into a surplus in the 1980s. 
A)  Federal spending declined relative to GDP, while federal revenues rose relative to GDP. 
B)  Federal spending rose relative to GDP, while federal revenues declined relative to GDP. 
C)  Balanced budgets were passed through cooperation between the president and Congress. 
D)  The dollar depreciated, thereby lowering the budget deficit. 
E)  The budget deficit decreased and then disappeared, turning into a surplus in the 1980s.

Question 4

The budget deficit increased during the Great Recession of 2007-2009 and the financial crisis of 2008 because of _____

Accepted Answer

A)  an increase in tax rates for high-income households. 
B)  a sudden increase in terrorist attacks and anthrax scares. 
C)  low interest rates that crowded out private investment. 
D)  discretionary tax cuts and greater outlays on unemployment benefits. 
E)  greater outlays on national defense spending. 
A)  an increase in tax rates for high-income households. 
B)  a sudden increase in terrorist attacks and anthrax scares. 
C)  low interest rates that crowded out private investment. 
D)  discretionary tax cuts and greater outlays on unemployment benefits. 
E)  greater outlays on national defense spending.

Question 5

How long can the country run a deficit?

Accepted Answer

A)  as long as lenders are willing to finance that deficit at reasonable interest rates 
B)  as long as lenders are willing to finance that deficit at high interest rates 
C)  as long as borrowers are willing to finance that deficit at reasonable interest rates 
D)  as long as borrowers are willing to finance that deficit at high interest rates 
E)  as long as debt is risky 
A)  as long as lenders are willing to finance that deficit at reasonable interest rates 
B)  as long as lenders are willing to finance that deficit at high interest rates 
C)  as long as borrowers are willing to finance that deficit at reasonable interest rates 
D)  as long as borrowers are willing to finance that deficit at high interest rates 
E)  as long as debt is risky

Question 6

Because of the giant deficits of recent years, a growing federal debt has been ____

Accepted Answer

A)  central to the debate about monetary policy effectiveness. 
B)  central to the debate about fiscal policy effectiveness. 
C)  left out of the debate about fiscal policy effectiveness. 
D)  left out of the debate about monetary policy effectiveness. 
E)  central to discussion about the privatization of government. 
A)  central to the debate about monetary policy effectiveness. 
B)  central to the debate about fiscal policy effectiveness. 
C)  left out of the debate about fiscal policy effectiveness. 
D)  left out of the debate about monetary policy effectiveness. 
E)  central to discussion about the privatization of government.

Question 7

Which of the following is not included in the calculation of the debt held by the public?

Accepted Answer

A)  the debt held by banks 
B)  the debt held by firms 
C)  the debt held by the U.S. Treasury 
D)  the debt held by households 
E)  the debt held by foreign entities 
A)  the debt held by banks 
B)  the debt held by firms 
C)  the debt held by the U.S. Treasury 
D)  the debt held by households 
E)  the debt held by foreign entities

Question 8

The growth-reducing effects of high public debt are transmitted entirely through high real interest rates on that debt.

Accepted Answer

A) True 
 B)False

Question 9

The national debt _____

Accepted Answer

A)  is a flow variable measuring the net accumulation of past deficits. 
B)  is a stock variable measuring the net accumulation of past deficits. 
C)  measures the amount by which government revenues exceed outlays in a particular year. 
D)  includes the projected liabilities of Social Security, Medicare, and other federal retirement programs. 
E)  includes outstanding liabilities of federal, state, and local governments minus government financial assets. 
A)  is a flow variable measuring the net accumulation of past deficits. 
B)  is a stock variable measuring the net accumulation of past deficits. 
C)  measures the amount by which government revenues exceed outlays in a particular year. 
D)  includes the projected liabilities of Social Security, Medicare, and other federal retirement programs. 
E)  includes outstanding liabilities of federal, state, and local governments minus government financial assets.

Question 10

Discretionary expansionary fiscal policy may lead to all of the following, except _____

Accepted Answer

A)  decreased national saving. 
B)  decreased unemployment. 
C)  inflation. 
D)  lower interest rates. 
E)  crowding out. 
A)  decreased national saving. 
B)  decreased unemployment. 
C)  inflation. 
D)  lower interest rates. 
E)  crowding out.

Question 11

Federal deficits amounted to 3.5 percent of the U.S. GDP by 2003 because of _____

Accepted Answer

A)  the global financial crisis of 2002, which increased the rate of unemployment. 
B)  an increase in the cost of fighting the war against terrorism. 
C)  a rise in the stock market that decreased interest payment burdens for the government. 
D)  a decrease in military and defense spending due to the end of the war in Iraq. 
E)  an increase in welfare spending and Medicare expenses. 
A)  the global financial crisis of 2002, which increased the rate of unemployment. 
B)  an increase in the cost of fighting the war against terrorism. 
C)  a rise in the stock market that decreased interest payment burdens for the government. 
D)  a decrease in military and defense spending due to the end of the war in Iraq. 
E)  an increase in welfare spending and Medicare expenses.

Question 12

Although the United States ranks _____ in public outlays relative to GDP, the country ranks _____ in public debt relative to GDP.

Accepted Answer

A)  low; high 
B)  low; in the middle 
C)  low; low 
D)  high; low 
E)  high; in the middle 
A)  low; high 
B)  low; in the middle 
C)  low; low 
D)  high; low 
E)  high; in the middle

Question 13

The debt ceiling is _____

Accepted Answer

A)  a limit on the total amount of money the Federal Reserve System can borrow from the government. 
B)  the minimum amount of money the Federal Reserve System can borrow from other commercial banks. 
C)  a limit on the total amount of money the federal government can legally borrow. 
D)  the maximum amount of money the state governments are allowed to use for public outlays. 
E)  the maximum amount of money the state governments can borrow from the Fed. 
A)  a limit on the total amount of money the Federal Reserve System can borrow from the government. 
B)  the minimum amount of money the Federal Reserve System can borrow from other commercial banks. 
C)  a limit on the total amount of money the federal government can legally borrow. 
D)  the maximum amount of money the state governments are allowed to use for public outlays. 
E)  the maximum amount of money the state governments can borrow from the Fed.

Question 14

Until 1980, the national debt was mostly the result of _____

Accepted Answer

A)  wartime borrowing. 
B)  inflation. 
C)  bad monetary policy. 
D)  wasteful Congressional spending. 
E)  Social Security obligations. 
A)  wartime borrowing. 
B)  inflation. 
C)  bad monetary policy. 
D)  wasteful Congressional spending. 
E)  Social Security obligations.

Question 15

Crowding out refers to the government's increased demand for credit, which _____

Accepted Answer

A)  displaces some private-sector consumption by decreasing the price level. 
B)  displaces some private-sector borrowing by decreasing the interest rate. 
C)  displaces some private-sector borrowing by increasing the interest rate. 
D)  hires labor away from the private sector. 
E)  displaces some import purchases by the private sector. 
A)  displaces some private-sector consumption by decreasing the price level. 
B)  displaces some private-sector borrowing by decreasing the interest rate. 
C)  displaces some private-sector borrowing by increasing the interest rate. 
D)  hires labor away from the private sector. 
E)  displaces some import purchases by the private sector.

Question 16

When there are large federal budget deficits, the trade deficit tends to shrink.

Accepted Answer

A) True 
 B)False

Question 17

If a government runs a cyclically balanced budget, its revenue will equal its expenditure _____

Accepted Answer

A)  each year. 
B)  at each phase of the business cycle. 
C)  over the course of the business cycle. 
D)  only during expansions. 
E)  only during recessions. 
A)  each year. 
B)  at each phase of the business cycle. 
C)  over the course of the business cycle. 
D)  only during expansions. 
E)  only during recessions.

Question 18

Based on a $14.3 trillion debt held by the public in mid-2017, a 1-percentage-point increase in the nominal interest rate ultimately increases interest costs by _____

Accepted Answer

A)  143 billion. 
B)  14.3 billion. 
C)  1.43 billion. 
D)  0.143 
E)  0.0143 
A)  143 billion. 
B)  14.3 billion. 
C)  1.43 billion. 
D)  0.143 
E)  0.0143

Question 19

If a budget is cyclically balanced, the government should run a surplus when the economy experiences a contractionary gap.

Accepted Answer

A) True 
 B)False

Question 20

The budget of an economy is said to be in deficit when _____

Accepted Answer

A)  federal outlays exceed revenues. 
B)  federal revenues exceed outlays. 
C)  the anticipated inflation rate exceeds the actual rate. 
D)  there is a loss of value in the domestic currency with respect to one or more foreign currencies. 
E)  the anticipated interest rate exceeds the actual rate. 
A)  federal outlays exceed revenues. 
B)  federal revenues exceed outlays. 
C)  the anticipated inflation rate exceeds the actual rate. 
D)  there is a loss of value in the domestic currency with respect to one or more foreign currencies. 
E)  the anticipated interest rate exceeds the actual rate.

A possible budget reform involves _____

The functional finance philosophy is based on the idea that balancing the federal budget is less important than using it to promote an economy operating at its potential.

Which of the following correctly describes the trend in the federal budget during the 1980s?

The budget deficit increased during the Great Recession of 2007-2009 and the financial crisis of 2008 because of _____

How long can the country run a deficit?

Because of the giant deficits of recent years, a growing federal debt has been ____

Which of the following is not included in the calculation of the debt held by the public?

The growth-reducing effects of high public debt are transmitted entirely through high real interest rates on that debt.

The national debt _____

Discretionary expansionary fiscal policy may lead to all of the following, except _____

Federal deficits amounted to 3.5 percent of the U.S. GDP by 2003 because of _____

Although the United States ranks _ in public outlays relative to GDP, the country ranks _ in public debt relative to GDP.

The debt ceiling is _____

Until 1980, the national debt was mostly the result of _____

Crowding out refers to the government's increased demand for credit, which _____

When there are large federal budget deficits, the trade deficit tends to shrink.

If a government runs a cyclically balanced budget, its revenue will equal its expenditure _____

Based on a $14.3 trillion debt held by the public in mid-2017, a 1-percentage-point increase in the nominal interest rate ultimately increases interest costs by _____

If a budget is cyclically balanced, the government should run a surplus when the economy experiences a contractionary gap.

The budget of an economy is said to be in deficit when _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Fiscal Policy.

Money and the Financial System.

Banking and the Money Supply.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters

Exam 12: Federal Budgets and Public Policy.

A possible budget reform involves _____

The functional finance philosophy is based on the idea that balancing the federal budget is less important than using it to promote an economy operating at its potential.

Which of the following correctly describes the trend in the federal budget during the 1980s?

The budget deficit increased during the Great Recession of 2007-2009 and the financial crisis of 2008 because of _____

How long can the country run a deficit?

Because of the giant deficits of recent years, a growing federal debt has been ____

Which of the following is not included in the calculation of the debt held by the public?

The growth-reducing effects of high public debt are transmitted entirely through high real interest rates on that debt.

The national debt _____

Discretionary expansionary fiscal policy may lead to all of the following, except _____

Federal deficits amounted to 3.5 percent of the U.S. GDP by 2003 because of _____

Although the United States ranks _____ in public outlays relative to GDP, the country ranks _____ in public debt relative to GDP.

The debt ceiling is _____

Until 1980, the national debt was mostly the result of _____

Crowding out refers to the government's increased demand for credit, which _____

When there are large federal budget deficits, the trade deficit tends to shrink.

If a government runs a cyclically balanced budget, its revenue will equal its expenditure _____

Based on a $14.3 trillion debt held by the public in mid-2017, a 1-percentage-point increase in the nominal interest rate ultimately increases interest costs by _____

If a budget is cyclically balanced, the government should run a surplus when the economy experiences a contractionary gap.

The budget of an economy is said to be in deficit when _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Fiscal Policy.

Money and the Financial System.

Banking and the Money Supply.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters

Although the United States ranks _ in public outlays relative to GDP, the country ranks _ in public debt relative to GDP.