Question 1

Due to automatic stabilizers, when the nation's total income rises, government transfer spending:

Accepted Answer

A)   Increases and tax revenues decrease
B)   Decreases and tax revenues increase
C)   And tax revenues decrease
D)   And tax revenues increaseE) A) and C)
F) B) and C)

Question 2

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n) :

Accepted Answer

A)   Supply-side fiscal policy
B)   Expansionary fiscal policy
C)   Contractionary fiscal policy
D)   Nondiscretionary fiscal policyE) A) and B)
F) C) and D)

Question 3

To track the public debt over time and understand its significance to the economy, it is best:

Accepted Answer

A)   Examined relative to budget surpluses
B)   Calculated relative to the money supply
C)   Measured relative to the gross domestic product
D)   To compare it to imports, exports, and the trade deficitE) All of the above
F) B) and D)

Question 4

A major reason that the public debt cannot bankrupt the Federal government is because:

Accepted Answer

A)   The public debt is mostly held by foreigners
B)   The Federal government has the Social Security Trust Fund
C)   The public debt can be easily refinanced by issuing new bonds
D)   The Federal government can draw on its gold reservesE) All of the above
F) B) and C) C

Question 5

Refer to the data in the table above. The direction of fiscal policy became more contractionary from:

Accepted Answer

A)   2005 to 2006
B)   2001 to 2002
C)   2002 to 2003
D)   2003 to 2004E) None of the above
F) B) and C)

Question 6

The cyclically-adjusted surplus in the U.S. went from +1.2% of GDP in 2000 to +0.6% of GDP in 2002. This suggests that the government during that period:

Accepted Answer

A)   Cut taxes and increased spending
B)   Increased taxes and cut spending
C)   Wanted to rein in inflation
D)   Did not change its discretionary fiscal policyE) None of the above
F) A) and D)

Question 7

The effect of an increase in the government budget deficit on the equilibrium level of GDP is essentially the same as a(n) :

Accepted Answer

A)   Decrease in saving
B)   Increase in saving
C)   Decrease in consumption
D)   Decrease in investmentE) C) and D)
F) None of the above

Question 8

In 2012, the general public (excluding Federal agencies)  held about what percentage of U.S. Federal debt?

Accepted Answer

A)   33%
B)   50%
C)   60%
D)   75%E) None of the above
F) B) and C)

Question 9

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) C) and D)
F) B) and C)

Question 10

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system:

Accepted Answer

A)   Increases crowding out in the economy
B)   Decreases real interest rates in the economy
C)   Offsets the timing problem for fiscal policy
D)   Serves as an automatic stabilizer for the economyE) A) and B)
F) A) and C)

Question 11

When Social Security contributions have exceeded payouts in the past, the excess amounts were used to help finance the Federal government's budget deficits.

Accepted Answer

A) True 
 B)False

Question 12

The Medicare trust fund is expected, if current flows continue, to be depleted within a couple of decades.

Accepted Answer

A) True 
 B)False

Question 13

When the Federal government cuts taxes and increases spending to stimulate the economy during a period of recession, such actions are design to be:

Accepted Answer

A)   Passive
B)   Automatic
C)   Countercyclical
D)   NondiscretionaryE) None of the above
F) All of the above

Question 14

The public debt is the:

Accepted Answer

A)   Amount of U.S. paper currency in circulation
B)   Ratio of all past deficits to all past surpluses
C)   Accumulation of all past deficits minus all past surpluses
D)   Difference between current government expenditures and current tax revenuesE) B) and C)
F) C) and D)

Question 15

Which of the following expansionary fiscal policy changes would be most favored by those economists who think that the government is too large and inefficient?

Accepted Answer

A)   A $40 billion increase in government spending
B)   A $20 billion tax cut and $20 billion increase in government spending
C)   A $10 billion tax cut and $30 billion increase in government spending
D)   A $40 billion tax cutE) A) and B)
F) None of the above

Question 16

In the later part of 2009, something historic happened relative to Social Security, in that for the first time:

Accepted Answer

A)   Social Security revenues became zero
B)   Social Security contributions fell short of payouts
C)   Social Security payouts did not increase
D)   The Social Security Trust Fund ran out of fundsE) B) and D)
F) A) and D)

Question 17

1 and output level Q1. If the government implements expansionary fiscal policy, and the full multiplier effect was felt, it would bring the economy to: A)  P2 and Q4 B)  P1 and Q1 C)  P2 and Q2 D)  P1 and Q3" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Assume that the economy initially has a price level of P1 and output level Q1. If the government implements expansionary fiscal policy, and the full multiplier effect was felt, it would bring the economy to:

Accepted Answer

A)   P2 and Q4
B)   P1 and Q1
C)   P2 and Q2
D)   P1 and Q3E) None of the above
F) C) and D)

Question 18

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by:

Accepted Answer

A)   $10 billion
B)   $20 billion
C)   $31.25 billion
D)   $40.50 billionE) None of the above
F) B) and C) B

Question 19

1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output? A)  P2 and Q4 B)  P1 and Q1 C)  P2 and Q2 D)  P1 and Q3" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output?

Accepted Answer

A)   P2 and Q4
B)   P1 and Q1
C)   P2 and Q2
D)   P1 and Q3E) All of the above
F) A) and C) C

Question 20

The following are important problems associated with the public debt, except:

Accepted Answer

A)   Payments of interest on the debt lead to greater income inequality
B)   Interest payments on the debt tend to reduce economic incentives to work and invest
C)   Government borrowing to finance the debt may lead to too much private investment
D)   Payment of interest on the debt held by foreigners would send real resources abroadE) All of the above
F) B) and D)

Exam 13: Fiscal Policy, Deficits, and Debt

Due to automatic stabilizers, when the nation's total income rises, government transfer spending:

Correct AnswerverifiedShow Answer

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n) :

Correct AnswerverifiedShow Answer

To track the public debt over time and understand its significance to the economy, it is best:

Correct AnswerverifiedShow Answer

A major reason that the public debt cannot bankrupt the Federal government is because:

Correct AnswerverifiedC

Refer to the data in the table above. The direction of fiscal policy became more contractionary from:

Correct AnswerverifiedShow Answer

The cyclically-adjusted surplus in the U.S. went from +1.2% of GDP in 2000 to +0.6% of GDP in 2002. This suggests that the government during that period:

Correct AnswerverifiedShow Answer

The effect of an increase in the government budget deficit on the equilibrium level of GDP is essentially the same as a(n) :

Correct AnswerverifiedShow Answer

In 2012, the general public (excluding Federal agencies) held about what percentage of U.S. Federal debt?

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

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system:

Correct AnswerverifiedShow Answer

When Social Security contributions have exceeded payouts in the past, the excess amounts were used to help finance the Federal government's budget deficits.

Correct AnswerverifiedShow Answer

The Medicare trust fund is expected, if current flows continue, to be depleted within a couple of decades.

Correct AnswerverifiedShow Answer

When the Federal government cuts taxes and increases spending to stimulate the economy during a period of recession, such actions are design to be:

Correct AnswerverifiedShow Answer

The public debt is the:

Correct AnswerverifiedShow Answer

Which of the following expansionary fiscal policy changes would be most favored by those economists who think that the government is too large and inefficient?

Correct AnswerverifiedShow Answer

In the later part of 2009, something historic happened relative to Social Security, in that for the first time:

Correct AnswerverifiedShow Answer

Refer to the graph above. Assume that the economy initially has a price level of P1 and output level Q1. If the government implements expansionary fiscal policy, and the full multiplier effect was felt, it would bring the economy to:

Correct AnswerverifiedShow Answer

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by:

Correct AnswerverifiedB

Refer to the graph above. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output?

Correct AnswerverifiedC

The following are important problems associated with the public debt, except:

Correct AnswerverifiedShow Answer

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C

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Refer to the graph above. Assume that the economy initially has a price level of P₁ and output level Q₁. If the government implements expansionary fiscal policy, and the full multiplier effect was felt, it would bring the economy to:

Correct Answer
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B

Refer to the graph above. Assume that the economy is in a recession with a price level of P₁ and output level Q₁. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output?

Correct Answer
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C

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