Question 1

Suppose the federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deﬁcits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its
Budget surpluses to pay down prior years of the public debt. At the end of these four years, the federal
Government's public debt would have

Accepted Answer

A)   increased by $50 billion.
B)   increased by $150 billion.
C)   decreased by $200 billion.
D)   decreased by $150 billion.E) A) and D)
F) C) and D)

Question 2

In 2018, about ____ percent of the U.S. public debt was held by people and institutions abroad.

Accepted Answer

A)   41
B)   15
C)   56
D)   29E) All of the above
F) B) and C)

Question 3

If the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by

Accepted Answer

A)   reducing government expenditures by $125 billion.
B)   reducing government expenditures by $20 billion.
C)   increasing taxes by $50 billion.
D)   increasing taxes by $250 billion.E) A) and B)
F) A) and C)

Question 4

(Last Word)  In 1960 the ratio of workers to Social Security and Medicare beneﬁciaries was ______; by 2040 it is projected to be _________.

Accepted Answer

A)   10:1; 3:1
B)   3:1; 2:1
C)   5:1; 2:1
D)   2:1; 3:1E) B) and C)
F) A) and D)

Question 5

Which one of the following might offset a crowding-out effect of ﬁnancing a large public debt?

Accepted Answer

A)   a decline in net exports
B)   an increase in public investment
C)   a decrease in the money supply
D)   a decline in public investmentE) None of the above
F) C) and D)

Question 6

If taxation becomes more progressive, the built-in stability in the economy will decrease.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

With the expenditures programs and the tax system shown in the diagram,

Accepted Answer

A)   the public budget will be expansionary at all GDP levels above K and contractionary at all GDP levels below K.
B)   the public budget will be a destabilizing force at all levels of GDP.
C)   deﬁcits will occur at income levels below K, and surpluses above K.
D)   deﬁcits will occur at income levels below H, and surpluses above H.E) B) and C)
F) B) and D)

Question 9

Expansionary ﬁscal policy is so named because it

Accepted Answer

A)   involves an expansion of the nation's money supply.
B)   necessarily expands the size of government.
C)   is aimed at achieving greater price stability.
D)   is designed to expand real GDP.E) B) and C)
F) B) and D)

Question 10

Describe the characteristics of ﬁscal policy in the Great Recession. Was it expansionary or
contractionary?

Accepted Answer

In December 2007, the U.S. economy enter...

Question 11

The crowding-out effect tends to be stronger when the economy

Accepted Answer

A)   has a lot of excess productive capacity.
B)   is at, or close to, full employment.
C)   has a very small net exports or foreign sector.
D)   is a very open economy with a large foreign sector.E) None of the above
F) A) and D)

Question 12

If the MPC in the economy is 0.75, government could shift the aggregate demand curve rightward by
$30 billion by cutting taxes by $10 billion.

Accepted Answer

A) True 
 B)False

Question 13

One timing problem in using ﬁscal policy to counter a recession is the "operational lag" that occurs between the

Accepted Answer

A)   start of the recession and the time it takes to recognize that the recession has started.
B)   start of a predicted recession and the actual start of the recession.
C)   time ﬁscal action is taken and the time that the action has its effect on the economy.
D)   time the need for the ﬁscal action is recognized and the time that the action is taken.E) B) and D)
F) A) and D)

Question 14

Transfer payments that increase as GDP falls are a type of automatic stabilizer in the economy.

Accepted Answer

A) True 
 B)False

Question 15

What percentage of the U.S. public debt is held by U.S. government agencies and the Federal Reserve (2018) ?

Accepted Answer

A)   26 percent
B)   50 percent
C)   37 percent
D)   15 percentE) A) and B)
F) A) and C)

Question 16

A major concern with the Social Security trust fund is that

Accepted Answer

A)   surpluses for Social Security are too large.
B)   the Federal government buys too many government securities.
C)   costs for administering the fund are greater than the current revenue.
D)   the fund will be exhausted in a couple of decades.E) A) and D)
F) B) and C)

Question 17

Refer to the diagram. If the full-employment level of GDP is A, then it would be appropriate ﬁscal policy for government to

Accepted Answer

A)   decrease spending and increase taxes.
B)   decrease spending and decrease taxes.
C)   increase spending and increase taxes.
D)   increase spending and decrease taxes.E) All of the above
F) A) and B)

Question 18

Built-in stability is exempliﬁed by the fact that with a progressive tax system, net tax revenues decrease
when GDP decreases.

Accepted Answer

A) True 
 B)False

Question 19

An increase in the cyclical deﬁcits will automatically increase the cyclically adjusted budget deﬁcit.

Accepted Answer

A) True 
 B)False

Question 20

It is possible for an increase in government spending to encourage, instead of crowding out, private
investment.

Accepted Answer

A) True 
 B)False

Exam 13: Fiscal Policy, Deficits, and Debt

Describe the characteristics of ﬁscal policy in the Great Recession. Was it expansionary or contractionary?

Correct Answer
verified
In December 2007, the U.S. economy enter...
View Answer

With the expenditures programs and the tax system shown in the diagram,

Correct Answer
verified

In 2018, about ____ percent of the U.S. public debt was held by people and institutions abroad.

Correct Answer
verified

The crowding-out effect tends to be stronger when the economy

Correct Answer
verified

It is possible for an increase in government spending to encourage, instead of crowding out, private investment.

Correct Answer
verified

Expansionary ﬁscal policy is so named because it

Correct Answer
verified

If taxation becomes more progressive, the built-in stability in the economy will decrease.

Correct Answer
verified

What percentage of the U.S. public debt is held by U.S. government agencies and the Federal Reserve (2018) ?

Correct Answer
verified

Transfer payments that increase as GDP falls are a type of automatic stabilizer in the economy.

Correct Answer
verified

(Last Word) In 1960 the ratio of workers to Social Security and Medicare beneﬁciaries was ; by 2040 it is projected to be ___.

Correct Answer
verified

An increase in the cyclical deﬁcits will automatically increase the cyclically adjusted budget deﬁcit.

Correct Answer
verified

If the MPC in the economy is 0.75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

Correct Answer
verified

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

Correct Answer
verified

If the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by

Correct Answer
verified

One timing problem in using ﬁscal policy to counter a recession is the "operational lag" that occurs between the

Correct Answer
verified

A major concern with the Social Security trust fund is that

Correct Answer
verified

Built-in stability is exempliﬁed by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.

Correct Answer
verified

Which one of the following might offset a crowding-out effect of ﬁnancing a large public debt?

Correct Answer
verified

Correct Answer
verified

Refer to the diagram. If the full-employment level of GDP is A, then it would be appropriate ﬁscal policy for government to

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, and Debt

Describe the characteristics of ﬁscal policy in the Great Recession. Was it expansionary or contractionary?

Correct AnswerverifiedIn December 2007, the U.S. economy enter...View AnswerShow Answer

With the expenditures programs and the tax system shown in the diagram,

Correct AnswerverifiedShow Answer

In 2018, about ____ percent of the U.S. public debt was held by people and institutions abroad.

Correct AnswerverifiedShow Answer

The crowding-out effect tends to be stronger when the economy

Correct AnswerverifiedShow Answer

It is possible for an increase in government spending to encourage, instead of crowding out, private investment.

Correct AnswerverifiedShow Answer

Expansionary ﬁscal policy is so named because it

Correct AnswerverifiedShow Answer

If taxation becomes more progressive, the built-in stability in the economy will decrease.

Correct AnswerverifiedShow Answer

What percentage of the U.S. public debt is held by U.S. government agencies and the Federal Reserve (2018) ?

Correct AnswerverifiedShow Answer

Transfer payments that increase as GDP falls are a type of automatic stabilizer in the economy.

Correct AnswerverifiedShow Answer

(Last Word) In 1960 the ratio of workers to Social Security and Medicare beneﬁciaries was ______; by 2040 it is projected to be _________.

Correct AnswerverifiedShow Answer

An increase in the cyclical deﬁcits will automatically increase the cyclically adjusted budget deﬁcit.

Correct AnswerverifiedShow Answer

If the MPC in the economy is 0.75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by

Correct AnswerverifiedShow Answer

One timing problem in using ﬁscal policy to counter a recession is the "operational lag" that occurs between the

Correct AnswerverifiedShow Answer

A major concern with the Social Security trust fund is that

Correct AnswerverifiedShow Answer

Built-in stability is exempliﬁed by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.

Correct AnswerverifiedShow Answer

Which one of the following might offset a crowding-out effect of ﬁnancing a large public debt?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the diagram. If the full-employment level of GDP is A, then it would be appropriate ﬁscal policy for government to

Correct AnswerverifiedShow Answer

Correct Answer
verified
In December 2007, the U.S. economy enter...
View Answer

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(Last Word) In 1960 the ratio of workers to Social Security and Medicare beneﬁciaries was ; by 2040 it is projected to be ___.

Correct Answer
verified

Correct Answer
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