Question 1

Accepted Answer

A)   do nothing since the economy appears to be achieving full-employment real output.
B)   increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD AD3 to AD2A D _ { 3 } 	ext { to } A D _ { 2 }AD3​ to AD2​  , assuming downward price ?exibility.
C)   increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level.
D)   increase taxes and reduce government spending to shift the aggregate demand curve from AD3 to AD1A D _ { 3 } 	ext { to } A D _ { 1 }AD3​ to AD1​E) None of the above
F) All of the above

Question 2

Accepted Answer

A)   increase taxes and reduce government spending to shift the aggregate demand curve rightward to AD AD2\mathrm { AD } _ { 2 }AD2​ 
B)   reduce taxes on businesses to shift the aggregate supply curve leftward.
C)   reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2A D _ { 1 } 	ext { to } A D _ { 2 }AD1​ to AD2​ 
D)   do nothing since the economy appears to be achieving full-employment real GDP. E) C) and D)
F) None of the above

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

The so-called crowding-out effect refers to government spending crowding out private investment
spending.

Accepted Answer

A) True 
 B)False

Question 5

A large public debt would not bankrupt the federal government, because it can reﬁnance the debt or
increase taxes to pay the debt.

Accepted Answer

A) True 
 B)False

Question 6

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the

Accepted Answer

A)   Federal Reserve.
B)   budget deﬁcit.
C)   budget surplus.
D)   public debt.E) B) and D)
F) B) and C)

Question 7

Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part
of the economic cost of war.

Accepted Answer

A) True 
 B)False

Question 8

The crowding-out effect refers to the possibility that deﬁcit spending may motivate people to increase
their saving in anticipation of higher future taxes.

Accepted Answer

A) True 
 B)False

Question 9

The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending,
Assuming that the aggregate supply curve is horizontal across the range of GDP being considered?

Accepted Answer

A)   $6 billion
B)   $8 billion
C)   $10 billion
D)   $16 billionE) None of the above
F) B) and D)

Question 13

Refer to the graph. Assume that the economy is in a recession with a price level of  P1P _ { 1 }P1​  and output level
 Q1Q _ { 1 }Q1​  . The government then adopts an appropriate discretionary ?scal policy. What will be the most likely
New equilibrium price level and output?

Accepted Answer

A)    P2 and Q4P _ { 2 } 	ext { and } Q _ { 4 }P2​ and Q4​ 
B)    P1 and Q1P _ { 1 } 	ext { and } Q _ { 1 }P1​ and Q1​ 
C)    P2 and Q2P _ { 2 } 	ext { and } Q _ { 2 }P2​ and Q2​ 
D)    P1 and Q3P _ { 1 } 	ext { and } Q _ { 3 }P1​ and Q3​E) B) and C)
F) B) and D)

Question 14

Discretionary ﬁscal policy will stabilize the economy most when

Accepted Answer

A)   deﬁcits are incurred during recessions and surpluses during inﬂations.
B)   the budget is balanced each year.
C)   deﬁcits are incurred during inﬂations and surpluses during recessions.
D)   budget surpluses are continuously incurred.E) B) and D)
F) B) and C)

Question 15

It is more meaningful economically to measure the public debt relative to the GDP than to measure it in
absolute terms.

Accepted Answer

A) True 
 B)False

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

Demand-pull inﬂation can be restrained by increasing government spending and reducing taxes.

Accepted Answer

A) True 
 B)False

Question 18

The crowding-out effect is

Accepted Answer

A)   strongest when the economy is at full employment.
B)   strongest when the economy is in a deep recession.
C)   weakest when there is demand-pull inﬂation.
D)   equally strong, regardless of the state of the macroeconomy.E) B) and C)
F) A) and C)

Question 19

One of the potential consequences of the public debt is that it may

Accepted Answer

A)   make income distribution more equitable.
B)   increase the debt burden of foreign creditors.
C)   lead to additional future taxes that reduce economic incentives.
D)   decrease interest rates and increase investment spending.E) All of the above
F) C) and D)

Question 20

Fiscal policy is enacted through changes in

Accepted Answer

A)   interest rates and the price level.
B)   the supply of money and foreign exchange.
C)   unemployment and inﬂation.
D)   taxation and government spending.E) All of the above
F) A) and C)

Exam 13: Fiscal Policy, Deficits, and Debt

The so-called crowding-out effect refers to government spending crowding out private investment spending.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the

Correct Answer
verified

The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending, Assuming that the aggregate supply curve is horizontal across the range of GDP being considered?

Correct Answer
verified

Demand-pull inﬂation can be restrained by increasing government spending and reducing taxes.

Correct Answer
verified

Discretionary ﬁscal policy will stabilize the economy most when

Correct Answer
verified

Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part of the economic cost of war.

Correct Answer
verified

One of the potential consequences of the public debt is that it may

Correct Answer
verified

A large public debt would not bankrupt the federal government, because it can reﬁnance the debt or increase taxes to pay the debt.

Correct Answer
verified

Correct Answer
verified

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.

Correct Answer
verified

The crowding-out effect is

Correct Answer
verified

The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

It is more meaningful economically to measure the public debt relative to the GDP than to measure it in absolute terms.

Correct Answer
verified

The crowding-out effect refers to the possibility that deﬁcit spending may motivate people to increase their saving in anticipation of higher future taxes.

Correct Answer
verified

Fiscal policy is enacted through changes in

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, and Debt

The so-called crowding-out effect refers to government spending crowding out private investment spending.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the

Correct AnswerverifiedShow Answer

The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending, Assuming that the aggregate supply curve is horizontal across the range of GDP being considered?

Correct AnswerverifiedShow Answer

Demand-pull inﬂation can be restrained by increasing government spending and reducing taxes.

Correct AnswerverifiedShow Answer

Discretionary ﬁscal policy will stabilize the economy most when

Correct AnswerverifiedShow Answer

Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part of the economic cost of war.

Correct AnswerverifiedShow Answer

One of the potential consequences of the public debt is that it may

Correct AnswerverifiedShow Answer

A large public debt would not bankrupt the federal government, because it can reﬁnance the debt or increase taxes to pay the debt.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The crowding-out effect is

Correct AnswerverifiedShow Answer

The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

Correct AnswerverifiedShow Answer

Refer to the graph. Assume that the economy is in a recession with a price level of P1P _ { 1 }P1​ and output level Q1Q _ { 1 }Q1​ . The government then adopts an appropriate discretionary ?scal policy. What will be the most likely New equilibrium price level and output?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

It is more meaningful economically to measure the public debt relative to the GDP than to measure it in absolute terms.

Correct AnswerverifiedShow Answer

The crowding-out effect refers to the possibility that deﬁcit spending may motivate people to increase their saving in anticipation of higher future taxes.

Correct AnswerverifiedShow Answer

Fiscal policy is enacted through changes in

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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