Question 1

The difference between the government debt and the budget deficit is

Accepted Answer

A)  the budget deficit shows the annual discrepancy between government spending and tax revenue and the government debt shows the accumulated balance of past government debts. 
B)  the government debt shows the annual discrepancy between government spending and tax revenue and the budget deficit shows the accumulated balance of past government debts. 
C)  not significant because both move in the same direction. 
D)  none.

Question 2

-In the above figure, if actual GDP = $14 trillion, there is a budget _ _ equal to .

Accepted Answer

A)  deficit; $0.2 trillion 
B)  deficit; $1.1 trillion 
C)  surplus; $0.2 trillion 
D)  surplus; $1.3 trillion

Question 3

The structural surplus

Accepted Answer

A)  is, by definition, equal to the negative of the cyclical deficit. 
B)  is legally required to be positive. 
C)  equals the actual surplus plus the cyclical surplus. 
D)  is the government budget surplus that would exist if the economy was at potential GDP.

Question 4

In general, the relationship between the business cycle and the government budget deficit is

Accepted Answer

A)  only now being studied by macroeconomics. 
B)  not stable because the relationship depends on consumer confidence. 
C)  for the deficit to fall when the economy is growing. 
D)  non- existent because the deficit depends on the policy of the current administration toward taxation.

Question 5

Induced taxes

Accepted Answer

A)  might change the government expenditure multiplier but the direction of the change is ambiguous. 
B)  decrease the government expenditure multiplier. 
C)  increase the government expenditure multiplier. 
D)  do not change the government expenditure multiplier.

Question 6

A country has been in existence for only two years. In the first year, tax revenues were $1.0 million and outlays were $1.5 million. In the second year, tax revenues were $1.5 million and outlays were
$2)0 million. At the end of the second year, the government had issued debt worth .

Accepted Answer

A)  $2.5 million 
B)  $1 million 
C)  $3.5 million 
D)  $0.5 million

Question 7

The categories of federal government outlays, listed from largest to smallest, are

Accepted Answer

A)  debt interest, transfer payments, and expenditure on goods and services. 
B)  transfer payments, debt interest, and expenditure on goods and services. 
C)  transfer payments, expenditure on goods and services, and debt interest. 
D)  expenditure on goods and services, debt interest, and transfer payments.

Question 8

The Employment Act of 1946 made it the responsibility of the federal government to

Accepted Answer

A)  improve the distribution of income. 
B)  promote maximum employment. 
C)  balance its budget because that policy would create the maximum level of employment. 
D)  provide full employment and a stable balance of payments.

Question 9

The income tax system

Accepted Answer

A)  enlarges movements in real GDP. 
B)  increases the effects of autonomous investment and exports. 
C)  acts like an economic shock absorber, automatically stabilizing movements in the economy. 
D)  prevents the economy from moving toward equilibrium.

Question 10

Comparing the U.S. budget position for 2009 to the rest of the world, we see that as a percentage of GDP, the than in most other countries.

Accepted Answer

A)  U.S. budget surplus is larger 
B)  U.S. budget deficit is smaller 
C)  U.S. budget surplus is smaller 
D)  U.S. budget deficit is larger

Question 11

The magnitude of the autonomous tax multiplier the magnitude of the government expenditure multiplier.

Accepted Answer

A)  could be smaller, larger, or equal to, depending upon the state of the economy 
B)  is always larger than 
C)  is always equal to 
D)  is always smaller than

Question 12

The use of fiscal policy is limited because

Accepted Answer

A)  the President may have different goals than Congress. 
B)  there is never a long enough time lag. 
C)  time lags associated with fiscal policy may cause the policy to take effect too late to solve the problem it was supposed to address. 
D)  the economy is almost always at full employment.

Question 13

If tax receipts exactly equaled government outlays in a year, the budget deficit would be zero.

Accepted Answer

A) True 
 B)False

Question 14

The main goal of fiscal policy is to produce a balanced budget.

Accepted Answer

A) True 
 B)False

Question 15

One characteristic of automatic stabilizers is that they

Accepted Answer

A)  have no effect on unemployment. 
B)  automatically produce surpluses during recessions and deficits during inflation. 
C)  require no legislative action by Congress to be made effective. 
D)  reduce the size of the federal government debt during times of recession.

Question 16

-What is the amount of the surplus or deficit incurred in year 5 by the government shown in the above table?

Accepted Answer

A)  $15 billion deficit 
B)  $5 billion surplus 
C)  $325 billion surplus 
D)  $35 billion surplus

Question 17

Fiscal policy attempts to achieve all of the following objectives EXCEPT .

Accepted Answer

A)  full employment 
B)  sustained economic growth 
C)  price level stability 
D)  a stable money supply

Question 18

Income taxes and transfer payments

Accepted Answer

A)  prevent the economy from moving toward equilibrium. 
B)  increase the effects of investment and imports. 
C)  increase the rate of long- run income growth. 
D)  act like economic shock absorbers and stabilize fluctuations in income.

Question 19

Which of the following is NOT a government outlay?

Accepted Answer

A)  expenditure on goods and services 
B)  debt interest on the government's debt 
C)  transfer payments 
D)  purchases of foreign bonds

Question 20

Which of the following policies shifts the AD curve the farthest leftward?

Accepted Answer

A)  a cut in taxes of $10 billion 
B)  a rise in taxes of $10 billion 
C)  a decrease in both government expenditure and taxes of $10 billion 
D)  a decrease in government expenditure of $10 billion

Exam 13: Fiscal Policy