Question 1

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) B) and C)

Question 2

The so-called negative taxes are better known as

Accepted Answer

A)  government spending.
B)  transfer payments.
C)  built-in stabilizers.
D)  fiscal multipliers.E) A) and B)
F) B) and C)

Question 3

The immediate primary cause of the swing from federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was

Accepted Answer

A)  the tax cuts of 2001.
B)  spending increases relating to the wars in Afghanistan and Iraq.
C)  the recession of 2001.
D)  the acceleration of inflation in 2001 and 2002.E) B) and C)
F) A) and D)

Question 4

The cyclically adjusted surplus as a percentage of GDP is 1 percent in Year 1.This surplus becomes a deficit of 2 percent of GDP in Year 2.It can be concluded that from Year 1 to Year 2,

Accepted Answer

A)  fiscal policy turned more expansionary.
B)  fiscal policy turned more contractionary.
C)  GDP increased.
D)  GDP decreased.E) A) and C)
F) A) and B)

Question 5

The concept of a "political business cycle" implies a misuse of fiscal policy making it a source of economic instability.

Accepted Answer

A) True 
 B)False

Question 6

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 7

One timing problem in using fiscal policy to counter a recession is the "administrative 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) All of the above
F) B) and D)

Question 8

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the

Accepted Answer

A)  economy's MPS is small.
B)  economy's MPS is large.
C)  economy's MPC is small.
D)  unemployment rate is low.E) A) and D)
F) C) and D)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

The intent of contractionary fiscal policy is to

Accepted Answer

A)  increase aggregate demand.
B)  decrease aggregate demand.
C)  increase aggregate supply.
D)  decrease aggregate supply.E) C) and D)
F) A) and B)

Question 11

Suppose that the economy is in the midst of a recession.Which of the following policies would most likely end the recession and stimulate output growth?

Accepted Answer

A)  A congressional proposal to incur a federal surplus to be used for the retirement of public debt.
B)  Reductions in agricultural subsidies and veterans' benefits.
C)  Postponement of a highway construction program.
D)  Reductions in federal tax rates on personal and corporate income.E) All of the above
F) B) and C)

Question 12

Through the start of 2009, Social Security revenues exceeded payouts, and the excess inflow was used to buy

Accepted Answer

A)  public lands.
B)  gold certificates.
C)  foreign securities.
D)  Treasury securities.E) A) and D)
F) A) and C)

Question 13

If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by

Accepted Answer

A)  increasing government spending by $25 billion.
B)  increasing government spending by $80 billion.
C)  decreasing taxes by $25 billion.
D)  decreasing taxes by $100 billion.E) A) and D)
F) B) and C)

Question 14

Which of the following is not an important problem associated with the public debt?

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 sends real resources abroad.E) All of the above
F) C) and D)

Question 15

The Great Recession of 2007-09 and the consequent policy response made the

Accepted Answer

A)  actual budget deficit become very close to the cyclically adjusted deficit during that period.
B)  actual budget deficit shrink during that period.
C)  cyclically adjusted deficit grow during that period.
D)  cyclically adjusted budget balance turn positive during that period.E) All of the above
F) C) and D)

Question 16

An economist who favors smaller government would recommend

Accepted Answer

A)  tax cuts during recession and reductions in government spending during inflation.
B)  tax increases during recession and tax cuts during inflation.
C)  tax cuts during recession and tax increases during inflation.
D)  increases in government spending during recession and tax increases during inflation.E) None of the above
F) A) and B)

Question 17

When changes in taxes and government spending occur in the economy without explicit action by Congress, such policy is called fiscal policy.

Accepted Answer

A)  cyclical
B)  implicit
C)  discretionary
D)  nondiscretionaryE) B) and C)
F) C) and D)

Question 18

Recessions have contributed to the public debt by

Accepted Answer

A)  reducing national income and therefore tax revenues.
B)  increasing real interest rates.
C)  increasing the international value of the dollar.
D)  increasing national saving.E) C) and D)
F) None of the above

Question 19

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) A) and C)
F) All of the above

Question 20

The group of three economists appointed by the president to provide fiscal policy recommendations is the

Accepted Answer

A)  Council of Economic Advisers.
B)  Joint Economic Committee.
C)  Bureau of Economic Analysis.
D)  Federal Reserve Board of Governors.E) All of the above
F) B) and D)

Exam 33: Fiscal Policy, Deficits, and Debt

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

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the

Correct AnswerverifiedShow Answer

If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by

Correct AnswerverifiedShow Answer

The group of three economists appointed by the president to provide fiscal policy recommendations is the

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

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

Correct AnswerverifiedShow Answer

Which of the following is not an important problem associated with the public debt?

Correct AnswerverifiedShow Answer

An economist who favors smaller government would recommend

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

Through the start of 2009, Social Security revenues exceeded payouts, and the excess inflow was used to buy

Correct AnswerverifiedShow Answer

The concept of a "political business cycle" implies a misuse of fiscal policy making it a source of economic instability.

Correct AnswerverifiedShow Answer

The cyclically adjusted surplus as a percentage of GDP is 1 percent in Year 1.This surplus becomes a deficit of 2 percent of GDP in Year 2.It can be concluded that from Year 1 to Year 2,

Correct AnswerverifiedShow Answer

Suppose that the economy is in the midst of a recession.Which of the following policies would most likely end the recession and stimulate output growth?

Correct AnswerverifiedShow Answer

When changes in taxes and government spending occur in the economy without explicit action by Congress, such policy is called fiscal policy.

Correct AnswerverifiedShow Answer

The immediate primary cause of the swing from federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was

Correct AnswerverifiedShow Answer

Recessions have contributed to the public debt by

Correct AnswerverifiedShow Answer

The Great Recession of 2007-09 and the consequent policy response made the

Correct AnswerverifiedShow Answer

The so-called negative taxes are better known as

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The intent of contractionary fiscal policy is to

Correct AnswerverifiedShow Answer

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