Question 1

The debt ceiling _____

Accepted Answer

A)  can be changed whenever it is necessary. 
B)  can be changed even if it is not necessary. 
C)  has never been enforced. 
D)  has never been hit. 
E)  is not legal and is only a formality.

Question 2

Crowding out is caused by a _____

Accepted Answer

A)  reduction in government purchases of goods and services. 
B)  reduction in the value of the multiplier used for government purchases of goods and services by increasing the interest rate. 
C)  reduction in the value of the multiplier used for government purchases of goods and services by increasing the marginal propensity to consume. 
D)  reduction in the value of the multiplier used for government purchases of goods and services by decreasing the marginal propensity to consume. 
E)  reduction in the imports of goods and services.

Question 3

Actual federal budgets are not an accurate measure of discretionary fiscal policy because _____

Accepted Answer

A)  it is difficult to measure government spending accurately. 
B)  people cheat on their income taxes. 
C)  budget deficits increase during expansions even without changes in fiscal policy. 
D)  budget deficits increase during recessions even without changes in fiscal policy. 
E)  earlier administrations may have contributed to current budget deficits.

Question 4

Interest payments in the United States increased during the 1980s because of _____

Accepted Answer

A)  higher interest rates. 
B)  a low tax rate. 
C)  growing budget surpluses. 
D)  a fall in government expenditure. 
E)  an increase in national savings.

Question 5

Biennial budgets have replaced the annual budget process for the federal government.

Accepted Answer

A) True 
 B)False

Question 6

Outlays relative to GDP increased in _____ of the major economies and decreased in _____ between 2000 and 2017.

Accepted Answer

A)  five; two 
B)  four; one 
C)  three; three 
D)  two; four 
E)  one; five

Question 7

Which of the following is not a problem associated with the U.S. federal budget process?

Accepted Answer

A)  the congressional committee framework 
B)  the lengthy budget process 
C)  the failure to meet deadlines 
D)  the lack of detail in the budget 
E)  uncontrollable budget items

Question 8

If actions by the president and Congress reduce the federal government budget deficit, then interest rates will _____, the U.S. dollar will _____, and the foreign trade deficit will _____.

Accepted Answer

A)  increase; appreciate; increase 
B)  increase; depreciate; increase 
C)  decrease; appreciate; decrease 
D)  decrease; depreciate; increase 
E)  decrease; depreciate; decrease

Question 9

The crowding in of private investment is more likely to occur when _____

Accepted Answer

A)  there is a depreciation of domestic currency. 
B)  interest rates increase significantly. 
C)  a contractionary gap exists in an economy. 
D)  budget deficits lower expectations about economic growth. 
E)  an expansionary gap exists in an economy.

Question 10

Problems with the federal government budget process include _____

Accepted Answer

A)  tough choices to be made by Congress each year on which entitlement programs will receive full support. 
B)  the constitutional requirement of Congress to balance the budget on an annual basis. 
C)  an overly detailed budget that allows Congress to reward friends, thereby discouraging restraint on spending. 
D)  a short review period for Congress that results in poor choices in funding programs. 
E)  Congress having too much control over the budgetary process.

Question 11

As of mid 2017, the debt held by the public was _____

Accepted Answer

A)  about $1 million. 
B)  about $1 billion. 
C)  $1 trillion. 
D)  about $13.5 trillion. 
E)  about $20 trillion.

Question 12

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 13

Continuing resolutions are _____

Accepted Answer

A)  budget agreements that allow agencies, in the absence of an approved budget, to spend at the rate of the previous year's budget. 
B)  legislative actions that guarantee benefits for those who qualify for government transfer programs such as Social Security and Medicare. 
C)  agreements about total outlays, spending by major category, and expected revenues of state governments. 
D)  budget resolutions that allow the federal government to allocate a fixed proportion of yearly outlays toward military related expenditures. 
E)  legislative actions undertaken to balance the budget.

Question 14

Only about one-fourth of the federal budget involves expenditure categories determined by existing obligations and laws.

Accepted Answer

A) True 
 B)False

Question 15

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)  a decrease 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 spending on the Department of Justice is included in government spending

Question 16

If the 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

Question 17

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 18

Deficits that arise from discretionary fiscal policy lead to a(n) _____

Accepted Answer

A)  increase in the demand for money, which is offset by the sale of more government securities. 
B)  decrease in the demand for money, which is offset by the sale of more government securities and an increase in interest rates. 
C)  increase in the number of government securities sold to the public and an increase in interest rates. 
D)  decrease in the number of government securities sold to the public and an increase in interest rates. 
E)  increase in the public's demand for money and a decrease in the number of government securities sold to the public, leading to lower interest rates.

Question 19

When indebted countries such as Greece, Ireland, Spain, and Portugal try to implement deficit-cutting remedies that reduce public spending and increase taxes, what is often the result?

Accepted Answer

A)  budget surpluses 
B)  balanced budgets 
C)  credit downgrades 
D)  reelected governments 
E)  violent protests

Question 20

Which of the following steps does not belong to the sequence of events reflecting the financing of a large government budget deficit?

Accepted Answer

A)  The U.S. Treasury sells securities. 
B)  The sale of securities drives up interest rates. 
C)  Attracted by the high interest rates, foreigners purchase dollars in order to invest in the United States. 
D)  The greater demand for the dollar increases its value relative to other currencies. 
E)  The rising value of the dollar leads to increased U.S. exports and reduced U.S. imports.

Exam 12: Federal Budgets and Public Policy.