Question 1

A public debt which is owed to foreigners can be burdensome because:

Accepted Answer

A)   Foreign interest rates are persistently higher than domestic interest rates
B)   The payment of interest reduces the volume of goods and services available for domestic uses
C)   The payment of interest will conflict with a nation's foreign aid programs
D)   The payment of interest will necessarily have a deflationary effect on prices in the paying nationE) A) and B)
F) B) and C)

Question 2

Which of the following serves as an automatic stabilizer in the economy?

Accepted Answer

A)   Interest rates
B)   Exchange rates
C)   The inflation rate
D)   The progressive income taxE) A) and D)
F) A) and C)

Question 3

If the budget deficit becomes smaller, then it will cause the public debt to also become smaller.

Accepted Answer

A) True 
 B)False

Question 4

Refer to the above graph. The economy was initially in equilibrium at point 3 and interest rates increased by 4 percentage points because of government deficit financing. The public spending, however, improves business confidence and activity that exactly offsets the potential crowding-out effect. This situation would result in a new equilibrium at point:

Accepted Answer

A)   2
B)   3
C)   4
D)   5E) A) and B)
F) A) and C)

Question 5

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 periodE) All of the above
F) A) and B)

Question 6

Which of the following is an important real consequence of the public debt of the United States?

Accepted Answer

A)   It will threaten to bankrupt the Federal government
B)   It discourages saving among the general public
C)   It decreases the inequality in the distribution of income in the U.S.
D)   Its consequent higher interest rates lead to fewer incentives to bear risk and innovateE) All of the above
F) B) and D)

Question 7

A Federal budget deficit is financed by the:

Accepted Answer

A)   Government purchase of Treasury securities
B)   Government issuance or sale of Treasury securities
C)   Nation's exports
D)   Private sector's investment spendingE) B) and C)
F) A) and D)

Question 8

How is the public debt calculated?

Accepted Answer

A)   By subtracting the government's total liabilities from its total assets
B)   By cumulating the annual government purchases over time
C)   By subtracting current government spending from current government tax revenues
D)   By cumulating the annual difference between tax revenues and government spending over the yearsE) B) and D)
F) A) and D)

Question 9

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 10

One timing problem in using fiscal policy to counter a recession is the "recognition 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 takenE) A) and B)
F) C) and D)

Question 11

If Congress passes legislation to increase government spending to counter the effects of a recession, 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) C) and D)
F) B) and C)

Question 12

The following is budget information for a hypothetical economy. All data are in billions of dollars.  Refer to the above table. The budget deficit was $75 billion in:

Accepted Answer

A)   Year 2
B)   Year 3
C)   Year 4
D)   Year 5E) A) and D)
F) All of the above

Question 13

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 14

The following is an investment schedule. Investment spending is in billions of dollars.  Refer to the data in the table above. Assume that private investment spending is initially $78 billion. If the government finances a deficit and this action increases the interest rate by 2 percentage points, then the government financing would have potentially crowded out:

Accepted Answer

A)   $92 billion of investment spending
B)   $17 billion of investment spending
C)   $78 billion of investment spending
D)   $14 billion of investment spendingE) A) and C)
F) B) and C)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

The total amount of debt owed by the Federal government is represented by the total value of the outstanding:

Accepted Answer

A)   U.S. government securities
B)   Federal Reserve notes
C)   Bank loans and deposits
D)   Stocks and bondsE) A) and D)
F) A) and C)

Question 18

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 19

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 spendingE) B) and C)
F) A) and B)

Question 20

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could:

Accepted Answer

A)   Increase taxes by $16 billion
B)   Increase taxes by $24 billion
C)   Decrease government spending by $10 billion
D)   Decrease government spending by $16 billionE) A) and B)
F) All of the above

Exam 13: Fiscal Policy, Deficits, and Debt

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

Fiscal policy is enacted through changes in:

Correct Answer
verified

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

Correct Answer
verified

The total amount of debt owed by the Federal government is represented by the total value of the outstanding:

Correct Answer
verified

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n) :

Correct Answer
verified

A public debt which is owed to foreigners can be burdensome because:

Correct Answer
verified

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could:

Correct Answer
verified

Correct Answer
verified

Which of the following serves as an automatic stabilizer in the economy?

Correct Answer
verified

If the budget deficit becomes smaller, then it will cause the public debt to also become smaller.

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

How is the public debt calculated?

Correct Answer
verified

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

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 following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the above table. The budget deficit was $75 billion in:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Which of the following is an important real consequence of the public debt of the United States?

Correct Answer
verified

A Federal budget deficit is financed by the:

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, and Debt

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

Fiscal policy is enacted through changes in:

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 total amount of debt owed by the Federal government is represented by the total value of the outstanding:

Correct AnswerverifiedShow Answer

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n) :

Correct AnswerverifiedShow Answer

A public debt which is owed to foreigners can be burdensome because:

Correct AnswerverifiedShow Answer

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following serves as an automatic stabilizer in the economy?

Correct AnswerverifiedShow Answer

If the budget deficit becomes smaller, then it will cause the public debt to also become smaller.

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

How is the public debt calculated?

Correct AnswerverifiedShow Answer

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

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 following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the above table. The budget deficit was $75 billion in:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is an important real consequence of the public debt of the United States?

Correct AnswerverifiedShow Answer

A Federal budget deficit is financed by the:

Correct AnswerverifiedShow Answer

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