Question 1

The difference between the federal budget deficit and the national debt is that the:

Accepted Answer

A) deficit is a stock variable and the debt is a flow variable. 
B) deficit is a flow variable and the debt is a stock variable. 
C) debt includes interest payments and the deficit does not. 
D) deficit can be positive,but the debt cannot. 
E) debt can be negative,but the deficit cannot.

Question 2

With few exceptions,the U.S.federal government has historically run a balanced budget.

Accepted Answer

A) True 
 B)False

Question 3

A disadvantage of functional finance is that it:

Accepted Answer

A) does not focus on producing the potential level of output in an economy. 
B) increases the level of unemployment during recessions. 
C) allows chronic deficits that magnify into national debt,allowing it to reach an alarming level. 
D) requires that the budget is balanced even during times of war. 
E) magnifies fluctuations in the business cycle.

Question 4

In the short run,a surplus federal budget _____.

Accepted Answer

A) reduces national saving 
B) boosts domestic saving 
C) stimulates aggregate demand 
D) promotes economic growth in the long run 
E) increases the federal debt

Question 5

​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.

Question 6

Because of automatic stabilizers,_____.

Accepted Answer

A) fiscal policy focuses on maintaining an annually balanced budget 
B) planning discretionary fiscal measures to reduce economic fluctuations is easy 
C) government budget deficits are zero if averaged out over the entire business cycle 
D) policy makers should be concerned less with balancing the budget annually 
E) government budget deficits are smaller during expansions and larger during contractions

Question 7

If aggregate output is falling,_____.

Accepted Answer

A) federal budget deficit decreases 
B) tax revenue increases 
C) automatic stabilizers will tend to increase the size of the deficit 
D) automatic stabilizers will tend to decrease the size of the deficit 
E) transfer payments decrease as fewer people become eligible for public assistance

Question 8

Which of the following is not a legitimate reason for maintaining federal budget deficits?

Accepted Answer

A) Deficits boost domestic saving,which in the long run could promote economic growth. 
B) Deficits help reduce the size and duration of recessions through automatic stabilizers. 
C) Deficits are used to finance capital projects. 
D) Public spending through deficit financing wins support from the voters. 
E) A federal budget deficit stimulates aggregate demand.

Question 9

A possible explanation for the persistence of the U.S.federal budget deficits is that:

Accepted Answer

A) it is easier politically to increase government spending than to decrease taxes. 
B) it is easier politically to decrease government spending than to decrease taxes. 
C) it is easier politically to increase government spending than to increase taxes. 
D) the economy naturally tends toward recessions. 
E) the economy naturally tends toward full employment.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements about the tax cut enacted in 1981 is correct?

Accepted Answer

A) The tax cut caused the recession of 1982. 
B) The tax cut and the recession of 1982 combined to produce one of the largest peace-time deficits ever experienced up to that time. 
C) The tax cut stimulated a large increase in economic activity and led directly to the balanced budget of 1982. 
D) The tax cut was opposed by supply-side economists. 
E) The tax cut was favored by Congress but opposed by the President and passed over his veto.

Question 12

If the government increased defense spending by $1 million and laid off enough Justice Department employees to decrease the Department of Justice budget by $1 million,which of the following is the likely net effect?

Accepted Answer

A) An increase in the budget deficit and transfer payments 
B) An increase in the budget deficit and net taxes 
C) An increase in the budget deficit and government spending 
D) No change in the budget deficit because there is no net change in government spending 
E) No change in the budget deficit because neither defense spending nor the Department of Justice is included in government spending

Question 13

In the short run,a federal budget deficit will most likely _____.

Accepted Answer

A) stimulate aggregate supply 
B) reduce federal debt 
C) boost economic growth 
D) reduce national saving 
E) boost domestic saving

Question 14

Increased government borrowing to cover a budget deficit results in:

Accepted Answer

A) a higher interest rate and the depreciation of the U.S.dollar. 
B) a higher interest rate and the appreciation of the U.S.dollar. 
C) a lower interest rate and the depreciation of the U.S.dollar. 
D) a lower interest rate and the appreciation of the U.S.dollar. 
E) increased purchases of foreign assets by U.S.residents.

Question 15

The budget deficit tends to decline during periods of recession and to increase during periods of economic recovery.

Accepted Answer

A) True 
 B)False

Question 16

Discretionary policy deficits are associated with:

Accepted Answer

A) increases in national saving. 
B) higher prices. 
C) lower outputs. 
D) lower interest rates. 
E) raising taxes.

Question 17

The federal budget is:

Accepted Answer

A) submitted by Congress to the President and contains proposals for tax increases. 
B) submitted by Congress to the President and contains proposals for government expenditures. 
C) always in balance,with receipts equal to expenditures. 
D) equal to government purchases plus cash and in-kind transfer payments. 
E) usually planned for the calendar year,which starts from January.

Question 18

If the U.S.government spent $20 million paying people to dig holes in 2005 and then spent $30 million paying the same people to fill the holes up again that same year,we would expect the net effect to be a(n):

Accepted Answer

A) decrease in transfer payments 
B) increase in the budget deficit as transfer payments increased 
C) increase in the budget deficit as government purchases of goods and services increased by $50 million 
D) increase in the budget deficit as government purchases of goods and services increased by $30 million 
E) $10-million-dollar increase in the budget deficit

Question 19

A biennial budget:

Accepted Answer

A) is more useful than an annual budget as a tool of discretionary fiscal policy. 
B) is implemented by the federal government,while an annual budget is implemented by state governments. 
C) would ensure that cabinet members spend more time on administering an approved budget and defending a proposed budget. 
D) would encourage cabinet members to focus more on running their agencies rather than being involved in budget deliberations. 
E) would require shorter-term economic forecasts than an annual budget.

Question 20

If government increased Social Security benefits and decreased the salaries of government workers by the same amount,which of the following is the expected immediate effect?

Accepted Answer

A) An increase in the budget deficit and government purchases of goods and services. 
B) An increase in the budget deficit,but no change in government purchases of goods and services. 
C) An increase in the budget deficit and a decrease in government purchases of goods and services. 
D) No change in the budget deficit because there has been no change in government purchases of goods and services. 
E) No change in the budget deficit because government purchases of goods and services have decreased by the same amount as transfer payments have increased.

Exam 12: Federal Budgets and Public Policy

The difference between the federal budget deficit and the national debt is that the:

With few exceptions,the U.S.federal government has historically run a balanced budget.

A disadvantage of functional finance is that it:

In the short run,a surplus federal budget _____.

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

Because of automatic stabilizers,_____.

If aggregate output is falling,_____.

Which of the following is not a legitimate reason for maintaining federal budget deficits?

A possible explanation for the persistence of the U.S.federal budget deficits is that:

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

Which of the following statements about the tax cut enacted in 1981 is correct?

If the government increased defense spending by $1 million and laid off enough Justice Department employees to decrease the Department of Justice budget by $1 million,which of the following is the likely net effect?

In the short run,a federal budget deficit will most likely _____.

Increased government borrowing to cover a budget deficit results in:

The budget deficit tends to decline during periods of recession and to increase during periods of economic recovery.

Discretionary policy deficits are associated with:

The federal budget is:

If the U.S.government spent $20 million paying people to dig holes in 2005 and then spent $30 million paying the same people to fill the holes up again that same year,we would expect the net effect to be a(n) :

A biennial budget:

If government increased Social Security benefits and decreased the salaries of government workers by the same amount,which of the following is the expected immediate effect?

Exam 12: Federal Budgets and Public Policy

The difference between the federal budget deficit and the national debt is that the:

With few exceptions,the U.S.federal government has historically run a balanced budget.

A disadvantage of functional finance is that it:

In the short run,a surplus federal budget _____.

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

Because of automatic stabilizers,_____.

If aggregate output is falling,_____.

Which of the following is not a legitimate reason for maintaining federal budget deficits?

A possible explanation for the persistence of the U.S.federal budget deficits is that:

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

Which of the following statements about the tax cut enacted in 1981 is correct?

If the government increased defense spending by $1 million and laid off enough Justice Department employees to decrease the Department of Justice budget by $1 million,which of the following is the likely net effect?

In the short run,a federal budget deficit will most likely _____.

Increased government borrowing to cover a budget deficit results in:

The budget deficit tends to decline during periods of recession and to increase during periods of economic recovery.

Discretionary policy deficits are associated with:

The federal budget is:

If the U.S.government spent $20 million paying people to dig holes in 2005 and then spent $30 million paying the same people to fill the holes up again that same year,we would expect the net effect to be a(n) :

A biennial budget:

If government increased Social Security benefits and decreased the salaries of government workers by the same amount,which of the following is the expected immediate effect?

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