Question 1

A decrease in government spending and a cut in taxes would be a pair of ﬁscal policies that reinforce
each other.

Accepted Answer

A) True 
 B)False

Question 2

In the graph, tax revenues vary

Accepted Answer

A)   directly with the level of GDP.
B)   inversely with the level of GDP.
C)   directly with the level of government spending.
D)   inversely with the level of government spending.E) B) and C)
F) None of the above

Question 3

Fiscal policy is mainly undertaken by the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 4

The key to assessing whether ﬁscal policy is expansionary or not is to observe the change in the
cyclically adjusted budget balance.

Accepted Answer

A) True 
 B)False

Question 5

The goal of expansionary ﬁscal policy is to rein in inﬂation.

Accepted Answer

A) True 
 B)False

Question 6

Year  Actual Budget Deficit (-)  or  Surplus (+)   Cyclically Adjusted Deficit (-)  or Surplus (+) 1+1.4%+0.1%2+2.5+1.13+1.3+1.14−1.5−1.15−3.4−2.76−3.5−2.47−2.6−1.88−1.9−1.89−1.3−1.4\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Actual Budget Deficit (-)  or } \\text { Surplus (+)  }\end{array} & \begin{array} { c } \text { Cyclically Adjusted Deficit (-)  or Surplus } \( + ) \end{array} \\hline 1 & + 1.4 \% & + 0.1 \% \\hline 2 & + 2.5 & + 1.1 \\hline 3 & + 1.3 & + 1.1 \\hline 4 & - 1.5 & - 1.1 \\hline 5 & - 3.4 & - 2.7 \\hline 6 & - 3.5 & - 2.4 \\hline 7 & - 2.6 & - 1.8 \\hline 8 & - 1.9 & - 1.8 \\hline 9 & - 1.3 & - 1.4 \\hline\end{array} Year 123456789​ Actual Budget Deficit (-)  or  Surplus (+)  ​+1.4%+2.5+1.3−1.5−3.4−3.5−2.6−1.9−1.3​ Cyclically Adjusted Deficit (-)  or Surplus (+) ​+0.1%+1.1+1.1−1.1−2.7−2.4−1.8−1.8−1.4​​  Refer to the data in the table. In which year was the cyclical de?cit the largest?

Accepted Answer

A)   Year 2
B)   Year 1
C)   Year 5
D)   Year 6 E) A) and B)
F) A) and C) D

Question 7

The crowding-out effect suggests that

Accepted Answer

A)   increases in consumption are always at the expense of saving.
B)   increases in government spending will close a recessionary expenditure gap.
C)   increases in government spending may reduce private investment.
D)   high taxes reduce both consumption and saving.E) None of the above
F) A) and B)

Question 8

Gross Domestic Product (GDP)   Consumption (C)  $0$40100120200200300280400360\begin{array} { | c | c | } \hline 	ext { Gross Domestic Product (GDP)  } & 	ext { Consumption (C)  } \\hline \$ 0 & \$ 40 \\hline 100 & 120 \\hline 200 & 200 \\hline 300 & 280 \\hline 400 & 360 \\hline\end{array} Gross Domestic Product (GDP)  $0100200300400​ Consumption (C)  $40120200280360​​  The accompanying table is the before-tax consumption schedule for a closed economy. If a lump-sum tax (the same tax amount at each level of GDP)  of $40 is now imposed in this economy, the consumption
Schedule will be

Accepted Answer

A)     GDP  C $0$810088200168300248400320\begin{array} { | r | r | } \hline 	ext { GDP } & 	ext { C } \\hline \$ 0 & \$ 8 \\hline 100 & 88 \\hline 200 & 168 \\hline 300 & 248 \\hline 400 & 320 \\hline\end{array} GDP $0100200300400​ C $888168248320​​ 
B)     GDP  C $0$010080200160300240400320\begin{array} { | r | r | } \hline 	ext { GDP } & 	ext { C } \\hline \$ 0 & \$ 0 \\hline 100 & 80 \\hline 200 & 160 \\hline 300 & 240 \\hline 400 & 320 \\hline\end{array} GDP $0100200300400​ C $080160240320​​ 
C)     GDP  C $0$1010090200170300250400310\begin{array} { | c | r | } \hline 	ext { GDP } & 	ext { C } \\hline \$ 0 & \$ 10 \\hline 100 & 90 \\hline 200 & 170 \\hline 300 & 250 \\hline 400 & 310 \\hline\end{array} GDP $0100200300400​ C $1090170250310​​ 
D)     GDP  C $0$010060200120300180400240\begin{array} { | c | c | } \hline 	ext { GDP } & 	ext { C } \\hline \$ 0 & \$ 0 \\hline 100 & 60 \\hline 200 & 120 \\hline 300 & 180 \\hline 400 & 240 \\hline\end{array} GDP $0100200300400​ C $060120180240​​E) A) and B)
F) A) and C)

Question 9

Which would tend to reduce the crowding-out effect that occurs when the federal government increases its borrowing to ﬁnance a deﬁcit?

Accepted Answer

A)   The economy is operating at full employment.
B)   The economy is operating at less than full employment.
C)   The expenditures fail to contribute to the development of human capital.
D)   The deﬁcit ﬁnancing reduces the proﬁt expectations of business ﬁrms.E) All of the above
F) A) and B)

Question 10

The ﬁnancing of a government deﬁcit increases interest rates and, as a result, reduces investment spending. This statement describes

Accepted Answer

A)   the supply-side effects of ﬁscal policy.
B)   built-in stability.
C)   the crowding-out effect.
D)   the net export effect.E) All of the above
F) C) and D)

Question 11

The portion of the public debt held outside federal agencies and the Federal Reserve is

Accepted Answer

A)   larger than the portion held by federal agencies and the Federal Reserve.
B)   smaller than the portion held by federal agencies and the Federal Reserve.
C)   equally split between U.S. and foreign lenders.
D)   all held by foreign lenders.E) A) and D)
F) All of the above

Question 12

The impact of an expansionary ﬁscal policy may be strengthened if it crowds out some private
investment spending.

Accepted Answer

A) True 
 B)False  False

Question 13

A given reduction in government spending will dampen demand-pull inﬂation by a greater amount when the

Accepted Answer

A)   economy's MPS is large.
B)   economy's aggregate supply curve is ﬂat.
C)   economy's aggregate supply curve is steep.
D)   unemployment rate is high.E) A) and C)
F) All of the above

Question 14

Built-in stability means that

Accepted Answer

A)   an annually balanced budget will offset the procyclical tendencies created by state and local ﬁnance and thereby stabilize the economy.
B)   with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deﬁcit or produce a budget surplus, while a decline in income will result in a deﬁcit or a lowerBudget surplus.
C)   Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity.
D)   government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.E) A) and B)
F) B) and C) B

Question 15

A budget deﬁcit causes the government to issue or sell Treasury bonds.

Accepted Answer

A) True 
 B)False

Question 16

Increased government spending for investments such as highways or harbors ﬁnanced by increasing the public debt would most likely

Accepted Answer

A)   crowd out future public investment.
B)   reduce the economy's future productive capacity.
C)   complement private investment.
D)   crowd out private investment.E) A) and D)
F) A) and C)

Question 17

From 2010 to 2015, the actual as well as the cyclically adjusted federal budget deﬁcits as percentages of GDP in the U.S.

Accepted Answer

A)   rose exponentially.
B)   increased slowly.
C)   remained roughly constant.
D)   decreased.E) All of the above
F) A) and D)

Question 18

Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues

Accepted Answer

A)   increase and transfer payments decrease.
B)   decrease and transfer payments increase.
C)   and transfer payments both decrease.
D)   and transfer payments both increase.E) None of the above
F) B) and C)

Question 19

As of 2018, more than half of the total debt of the U.S. government was owed to foreigners.

Accepted Answer

A) True 
 B)False

Question 20

Payment of interest on the U.S. public debt

Accepted Answer

A)   increases the current domestic standard of living in the United States.
B)   has no effect on the distribution of income.
C)   is thought to decrease income inequality.
D)   is thought to increase income inequality.E) C) and D)
F) A) and B)

Exam 13: Fiscal Policy, Deficits, and Debt

A decrease in government spending and a cut in taxes would be a pair of ﬁscal policies that reinforce each other.

Correct Answer
verified

In the graph, tax revenues vary

Correct Answer
verified

Fiscal policy is mainly undertaken by the Federal Reserve.

Correct Answer
verified

The key to assessing whether ﬁscal policy is expansionary or not is to observe the change in the cyclically adjusted budget balance.

Correct Answer
verified

The goal of expansionary ﬁscal policy is to rein in inﬂation.

Correct Answer
verified

Correct Answer
verified
D

The crowding-out effect suggests that

Correct Answer
verified

Correct Answer
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Which would tend to reduce the crowding-out effect that occurs when the federal government increases its borrowing to ﬁnance a deﬁcit?

Correct Answer
verified

The ﬁnancing of a government deﬁcit increases interest rates and, as a result, reduces investment spending. This statement describes

Correct Answer
verified

The portion of the public debt held outside federal agencies and the Federal Reserve is

Correct Answer
verified

The impact of an expansionary ﬁscal policy may be strengthened if it crowds out some private investment spending.

Correct Answer
verified
False

A given reduction in government spending will dampen demand-pull inﬂation by a greater amount when the

Correct Answer
verified

Built-in stability means that

Correct Answer
verified
B

A budget deﬁcit causes the government to issue or sell Treasury bonds.

Correct Answer
verified

Increased government spending for investments such as highways or harbors ﬁnanced by increasing the public debt would most likely

Correct Answer
verified

From 2010 to 2015, the actual as well as the cyclically adjusted federal budget deﬁcits as percentages of GDP in the U.S.

Correct Answer
verified

Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues

Correct Answer
verified

As of 2018, more than half of the total debt of the U.S. government was owed to foreigners.

Correct Answer
verified

Payment of interest on the U.S. public debt

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, and Debt

A decrease in government spending and a cut in taxes would be a pair of ﬁscal policies that reinforce each other.

Correct AnswerverifiedShow Answer

In the graph, tax revenues vary

Correct AnswerverifiedShow Answer

Fiscal policy is mainly undertaken by the Federal Reserve.

Correct AnswerverifiedShow Answer

The key to assessing whether ﬁscal policy is expansionary or not is to observe the change in the cyclically adjusted budget balance.

Correct AnswerverifiedShow Answer

The goal of expansionary ﬁscal policy is to rein in inﬂation.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

The crowding-out effect suggests that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which would tend to reduce the crowding-out effect that occurs when the federal government increases its borrowing to ﬁnance a deﬁcit?

Correct AnswerverifiedShow Answer

The ﬁnancing of a government deﬁcit increases interest rates and, as a result, reduces investment spending. This statement describes

Correct AnswerverifiedShow Answer

The portion of the public debt held outside federal agencies and the Federal Reserve is

Correct AnswerverifiedShow Answer

The impact of an expansionary ﬁscal policy may be strengthened if it crowds out some private investment spending.

Correct AnswerverifiedFalse

A given reduction in government spending will dampen demand-pull inﬂation by a greater amount when the

Correct AnswerverifiedShow Answer

Built-in stability means that

Correct AnswerverifiedB

A budget deﬁcit causes the government to issue or sell Treasury bonds.

Correct AnswerverifiedShow Answer

Increased government spending for investments such as highways or harbors ﬁnanced by increasing the public debt would most likely

Correct AnswerverifiedShow Answer

From 2010 to 2015, the actual as well as the cyclically adjusted federal budget deﬁcits as percentages of GDP in the U.S.

Correct AnswerverifiedShow Answer

Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues

Correct AnswerverifiedShow Answer

As of 2018, more than half of the total debt of the U.S. government was owed to foreigners.

Correct AnswerverifiedShow Answer

Payment of interest on the U.S. public debt

Correct AnswerverifiedShow Answer

Correct Answer
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D

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False

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B

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