Exam 13: Fiscal Policy, Deficits, and Debt

A decrease in taxes is one way to pursue a contractionary fiscal policy because it will make government revenues contract.

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could:

How is the public debt calculated?

Expansionary fiscal policy during a recession means cutting taxes, increasing government spending, or taking both actions.

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):

The following is an investment schedule. Investment spending is in billions of dollars. Refer to the data in the table above. Assume that private investment spending is initially $78 billion. If the government finances a deficit and this action increases the interest rate by 2 percentage points, then the government financing would have potentially crowded out:

Which of the following serves as an automatic stabilizer in the economy?

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the:

A public debt which is owed to foreigners can be burdensome because:

If the budget deficit becomes smaller, then it will cause the public debt to also become smaller.

The so-called "recognition lag" associated with fiscal policy is a result of how slowly the U.S. Congress moves.

Refer to the above graph. The economy was initially in equilibrium at point 3 and interest rates increased by 4 percentage points because of government deficit financing. The public spending, however, improves business confidence and activity that exactly offsets the potential crowding-out effect. This situation would result in a new equilibrium at point:

The concept of a "political business cycle" implies a misuse of fiscal policy making it a source of economic instability.

Which of the following is an important real consequence of the public debt of the United States?

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the above table. The budget deficit was $75 billion in:

The total amount of debt owed by the Federal government is represented by the total value of the outstanding:

The "stimulus package" that the government implemented in response to the Great Recession of 2007-09 made the cyclically-adjusted budget of the U.S. have a very large positive balance in that time period.

A Federal budget deficit is financed by the:

The Great Recession of 2007-09 and the consequent policy response made the:

Fiscal policy is enacted through changes in: