Question 1

Appropriate fiscal policy depends on the other major tool of governmental stabilization policy:

Accepted Answer

A) trade policy. 
B) tax policy. 
C) monetary policy. 
D) labor market policy. 
A) trade policy. 
B) tax policy. 
C) monetary policy. 
D) labor market policy.

Question 2

If the aggregate supply curve has its normal shape, deficit spending will increase

Accepted Answer

A) both GDP and the price level at about the same rate. 
B) the price level before it increases real GDP. 
C) the price level but decrease real GDP. 
D) real GDP before it increases the price level. 
A) both GDP and the price level at about the same rate. 
B) the price level before it increases real GDP. 
C) the price level but decrease real GDP. 
D) real GDP before it increases the price level.

Question 3

The crowding-in effect depends on the fact that often a decrease in taxes causes a(n)

Accepted Answer

A) decrease in interest rates and an increase in the price of existing bonds. 
B) increase in output, which induces more investment. 
C) increase in interest rates and a decrease in the price of existing bonds. 
D) decrease in interest rates and the price of existing bonds. 
A) decrease in interest rates and an increase in the price of existing bonds. 
B) increase in output, which induces more investment. 
C) increase in interest rates and a decrease in the price of existing bonds. 
D) decrease in interest rates and the price of existing bonds.

Question 4

A federal budget deficit places a genuine burden on future generations when the

Accepted Answer

A) crowding-out effect is stronger than the crowding-in effect. 
B) crowding-in effect is stronger than the crowding-out effect. 
C) crowding-out and crowding-in effects work in opposite directions. 
D) crowding-out and crowding-in effects operate in the same direction. 
A) crowding-out effect is stronger than the crowding-in effect. 
B) crowding-in effect is stronger than the crowding-out effect. 
C) crowding-out and crowding-in effects work in opposite directions. 
D) crowding-out and crowding-in effects operate in the same direction.

Question 5

Lately, the ratio of debt to GDP has been

Accepted Answer

A) rising at a small rate. 
B) rising steadily. 
C) falling modestly. 
D) staying constant. 
A) rising at a small rate. 
B) rising steadily. 
C) falling modestly. 
D) staying constant.

Question 6

In 2010, many politicians argued that the deficit should be reduced at all costs but many economists countered that deficit reduction would be problematic given the state of the economy.

Accepted Answer

A) True 
 B)False

Question 7

The appropriate fiscal policy stance depends, at least partly, on the

Accepted Answer

A) stance of trade policy. 
B) stance of monetary policy. 
C) party in power in Congress. 
D) party in power in the presidency. 
A) stance of trade policy. 
B) stance of monetary policy. 
C) party in power in Congress. 
D) party in power in the presidency.

Question 8

Proponents of deficit reduction argue that the principal effect will be an

Accepted Answer

A) outward shift of the aggregate supply curve. 
B) inward shift of the aggregate supply curve. 
C) outward shift of the aggregate demand curve. 
D) inward shift of the aggregate demand curve. 
A) outward shift of the aggregate supply curve. 
B) inward shift of the aggregate supply curve. 
C) outward shift of the aggregate demand curve. 
D) inward shift of the aggregate demand curve.

Question 9

Many economists believe that if fiscal policy turns contractionary to reduce the deficit,

Accepted Answer

A) monetary policy can turn expansionary to counteract the effects on aggregate demand. 
B) monetary policy must be contractionary to reinforce the good effects of contractionary fiscal policy. 
C) foreign investment in the United States must be encouraged. 
D) taxes on the earnings from stock market gains should be increased. 
A) monetary policy can turn expansionary to counteract the effects on aggregate demand. 
B) monetary policy must be contractionary to reinforce the good effects of contractionary fiscal policy. 
C) foreign investment in the United States must be encouraged. 
D) taxes on the earnings from stock market gains should be increased.

Question 10

Inflation accounting for the debt argues the following:

Accepted Answer

A) The change in the value of the debt when inflation occurs complicates income tax codes, and is the reason for the tax changes of 2003. 
B) The portion of interest payments that compensate lenders for inflation should be considered repayment of debt rather than interest expense. 
C) The debt represents an inflationary problem, and grows more rapidly when people fear inflation. 
D) The portion of the deficit dedicated to repayment of interest on the debt should not be considered part of the deficit, because it is a transfer. 
A) The change in the value of the debt when inflation occurs complicates income tax codes, and is the reason for the tax changes of 2003. 
B) The portion of interest payments that compensate lenders for inflation should be considered repayment of debt rather than interest expense. 
C) The debt represents an inflationary problem, and grows more rapidly when people fear inflation. 
D) The portion of the deficit dedicated to repayment of interest on the debt should not be considered part of the deficit, because it is a transfer.

Question 11

Figure 16-1
  
-In Figure 16-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.Y3 is the full-employment level of income.At Y3

Accepted Answer

A) there is an official deficit but a structural budget balance. 
B) there is a structural deficit but an official budget surplus. 
C) the official and structural deficit are in balance. 
D) both the official and structural budgets show a deficit. 
A) there is an official deficit but a structural budget balance. 
B) there is a structural deficit but an official budget surplus. 
C) the official and structural deficit are in balance. 
D) both the official and structural budgets show a deficit.

Question 12

If the economy is near full employment and Congress cuts taxes, the proper monetary policy should be

Accepted Answer

A) expansionary to keep the economy fully employed. 
B) expansionary to counteract the increased deficit. 
C) contractionary to shift the aggregate demand curve outward. 
D) contractionary to counteract the effects of fiscal policy. 
A) expansionary to keep the economy fully employed. 
B) expansionary to counteract the increased deficit. 
C) contractionary to shift the aggregate demand curve outward. 
D) contractionary to counteract the effects of fiscal policy.

Question 13

The structural deficit is defined as

Accepted Answer

A) that part of the deficit that is so hard to remove that it is never reduced. 
B) the portion of the budget deficit that occurs because the economy is not at full employment. 
C) the hypothetical deficit the economy would have under current fiscal policies if the economy were operating near full employment. 
D) the actual budget deficit that exists in the economy. 
A) that part of the deficit that is so hard to remove that it is never reduced. 
B) the portion of the budget deficit that occurs because the economy is not at full employment. 
C) the hypothetical deficit the economy would have under current fiscal policies if the economy were operating near full employment. 
D) the actual budget deficit that exists in the economy.

Question 14

If crowding out occurs, the Main Burden of the debt is

Accepted Answer

A) smaller government assets passed along to the next generation. 
B) smaller capital stock passed along to the next generation. 
C) fewer government services during this generation. 
D) higher debt payments passed along to the next generation. 
A) smaller government assets passed along to the next generation. 
B) smaller capital stock passed along to the next generation. 
C) fewer government services during this generation. 
D) higher debt payments passed along to the next generation.

Question 15

In 2009, the Social Security System ran a surplus of approximately $137 billion.

Accepted Answer

A) True 
 B)False

Exam 33: Budget Deficits in the Short and Long Run

Appropriate fiscal policy depends on the other major tool of governmental stabilization policy:

If the aggregate supply curve has its normal shape, deficit spending will increase

The crowding-in effect depends on the fact that often a decrease in taxes causes a(n)

A federal budget deficit places a genuine burden on future generations when the

Lately, the ratio of debt to GDP has been

In 2010, many politicians argued that the deficit should be reduced at all costs but many economists countered that deficit reduction would be problematic given the state of the economy.

The appropriate fiscal policy stance depends, at least partly, on the

Proponents of deficit reduction argue that the principal effect will be an

Many economists believe that if fiscal policy turns contractionary to reduce the deficit,

Inflation accounting for the debt argues the following:

Figure 16-1 -In Figure 16-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.Y3 is the full-employment level of income.At Y3

If the economy is near full employment and Congress cuts taxes, the proper monetary policy should be

The structural deficit is defined as

If crowding out occurs, the Main Burden of the debt is

In 2009, the Social Security System ran a surplus of approximately $137 billion.

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

He Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

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