Question 1

A tax reduction of a specific amount will be more expansionary, the:

Accepted Answer

A)   smaller is the economy's MPC.
B)   larger is the economy's MPC.
C)   smaller is the economy's multiplier.
D)   less the economy's built-in stability.E) None of the above
F) A) and B)

Question 2

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Accepted Answer

A)   crowding-out lag.
B)   recognition lag.
C)   operational lag.
D)   administrative lag.E) All of the above
F) C) and D)

Question 3

(1)  The composite index of leading indicators turns downward for three consecutive months; (2)  Economists reach agreement that the economy is moving into a recession; (3)  A tax cut is proposed in Parliament; (4)  The tax cut is passed by Parliament; (5)  Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.
-Refer to the above information. The operational lag of fiscal policy is reflected in events:

Accepted Answer

A)   1 and 2.
B)   2 and 3.
C)   3 and 4.
D)   4 and 5.E) B) and C)
F) A) and D)

Question 4

A contractionary fiscal policy shifts the aggregate demand curve leftward and may or may not reduce real GDP.

Accepted Answer

A) True 
 B)False

Question 5

If the government increases its spending during recession to assist the economy, the funds for such expenditures must come from some source. Which of the following sources would be the most expansionary?

Accepted Answer

A)   additional taxes on personal incomes
B)   creating new money
C)   borrowing from the public
D)   additional taxes upon corporate profitsE) B) and C)
F) A) and D)

Question 6

Which policy to finance the public debt might crowd-out private spending?

Accepted Answer

A)   borrowing money from the public in the money market
B)   decreasing government spending
C)   creating new money
D)   decreasing taxesE) A) and B)
F) B) and C)

Question 7

Which of the following represents the most contractionary fiscal policy?

Accepted Answer

A)   a $30 billion tax cut
B)   a $30 billion increase in government spending
C)   a $30 billion tax increase
D)   a $30 billion decrease in government spendingE) A) and B)
F) None of the above

Question 8

To understand the quantitative significance of the public debt relative to the economy, it should be:

Accepted Answer

A)   divided by the social security trust fund.
B)   multiplied by the size of the population.
C)   measured as a percentage of GDP.
D)   compared to the value of imports and exports.E) All of the above
F) None of the above

Question 9

One of the timing problems with fiscal policy is an "operational lag" that occurs between the:

Accepted Answer

A)   beginning of a recession and the time that it is recognized that the event is occurring.
B)   time the need for fiscal action is recognized and the time that action is actually taken.
C)   time that fiscal action is taken and the time that action has an impact on output, employment, and the price level.
D)   time that fiscal action has an impact on output, employment, and the price level and the time by which it can be determined if the policy is effective.E) C) and D)
F) B) and D)

Question 10

Which is an important problem associated with the public debt?

Accepted Answer

A)   Payments of interest on the debt lead to greater income equality.
B)   Interest payments on the debt tend to improve economic incentives to work and produce more unemployment.
C)   Government borrowing to finance the debt may increase the level of private investment.
D)   Payment of interest on the debt held by foreigners transfers real resources abroad.E) A) and B)
F) A) and C)

Question 11

The crowding-out effect from government borrowing to finance the public debt is reduced when:

Accepted Answer

A)   the economy is experiencing a period of high inflation.
B)   the economy is operating at the full-employment level of output.
C)   public investment complements private investment.
D)   the distribution of income becomes more equal.E) A) and C)
F) C) and D)

Question 12

Increased government spending for investments such as highways or harbours financed by increasing the public debt would most likely:

Accepted Answer

A)   crowd out future public investment.
B)   reduce the economy's future productive capacity.
C)   increase the amount of public capital stock in the future.
D)   increase the amount of private capital stock in the future.E) A) and B)
F) A) and C)

Question 13

If the economy has a cyclically adjusted budget surplus, this means that:

Accepted Answer

A)   the public sector is exerting an expansionary impact upon the economy.
B)   tax revenues would exceed government expenditures if full employment were achieved.
C)   the actual budget is necessarily also in surplus.
D)   the economy is actually operating at full employment.E) B) and C)
F) All of the above

Question 14

Expansionary fiscal policy is so-named because it involves an expansion of the nation's money supply.

Accepted Answer

A) True 
 B)False

Question 15

The "crowding out" effect suggests that:

Accepted Answer

A)   government spending is increasing at the expense of private investment.
B)   imports are replacing domestic production.
C)   private investment is increasing at the expense of government spending.
D)   consumption is increasing at the expense of investment.E) A) and B)
F) A) and C)

Question 16

An appropriate fiscal policy for severe demand-pull inflation is:

Accepted Answer

A)   an increase in government spending.
B)   depreciation of the dollar.
C)   a reduction in interest rates.
D)   a tax rate increase.E) All of the above
F) A) and D)

Question 17

Countercyclical discretionary fiscal policy calls for:

Accepted Answer

A)   surpluses during recessions and deficits during periods of demand-pull inflation.
B)   deficits during recessions and surpluses during periods of demand-pull inflation.
C)   surpluses during both recessions and periods of demand-pull inflation.
D)   deficits during both recessions and periods of demand-pull inflation.E) B) and D)
F) A) and B)

Question 18

The crowding-out effect arises when:

Accepted Answer

A)   government borrows in the money market, thus increasing interest rates and net investment spending in the economy.
B)   government borrows in the money market, thus increasing interest rates and decreasing net investment spending.
C)   the progressivity of the tax system increases, thus decreasing interest rates and increasing net investment spending.
D)   the progressivity of the tax system decreases, thus decreasing interest rates and net investment spending.E) A) and D)
F) C) and D)

Question 19

The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.

Accepted Answer

A) True 
 B)False

Question 20

-If the full-employment GDP for the above economy is at L, the:

Accepted Answer

A)   actual budget will entail a deficit.
B)   cyclically adjusted budget will entail a deficit.
C)   actual budget will entail a surplus.
D)   cyclically adjusted budget will entail a surplus.E) A) and D)
F) All of the above

Exam 11: Fiscal Policy, Deficits, Surpluses, and Debt

If the economy has a cyclically adjusted budget surplus, this means that:

Correct Answer
verified

If the government increases its spending during recession to assist the economy, the funds for such expenditures must come from some source. Which of the following sources would be the most expansionary?

Correct Answer
verified

Which is an important problem associated with the public debt?

Correct Answer
verified

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Correct Answer
verified

The "crowding out" effect suggests that:

Correct Answer
verified

-If the full-employment GDP for the above economy is at L, the:

Correct Answer
verified

A contractionary fiscal policy shifts the aggregate demand curve leftward and may or may not reduce real GDP.

Correct Answer
verified

The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.

Correct Answer
verified

One of the timing problems with fiscal policy is an "operational lag" that occurs between the:

Correct Answer
verified

Which policy to finance the public debt might crowd-out private spending?

Correct Answer
verified

A tax reduction of a specific amount will be more expansionary, the:

Correct Answer
verified

Increased government spending for investments such as highways or harbours financed by increasing the public debt would most likely:

Correct Answer
verified

Countercyclical discretionary fiscal policy calls for:

Correct Answer
verified

The crowding-out effect from government borrowing to finance the public debt is reduced when:

Correct Answer
verified

Expansionary fiscal policy is so-named because it involves an expansion of the nation's money supply.

Correct Answer
verified

The crowding-out effect arises when:

Correct Answer
verified

To understand the quantitative significance of the public debt relative to the economy, it should be:

Correct Answer
verified

An appropriate fiscal policy for severe demand-pull inflation is:

Correct Answer
verified

Correct Answer
verified

Which of the following represents the most contractionary fiscal policy?

Correct Answer
verified

Exam 11: Fiscal Policy, Deficits, Surpluses, and Debt

If the economy has a cyclically adjusted budget surplus, this means that:

Correct AnswerverifiedShow Answer

If the government increases its spending during recession to assist the economy, the funds for such expenditures must come from some source. Which of the following sources would be the most expansionary?

Correct AnswerverifiedShow Answer

Which is an important problem associated with the public debt?

Correct AnswerverifiedShow Answer

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Correct AnswerverifiedShow Answer

The "crowding out" effect suggests that:

Correct AnswerverifiedShow Answer

-If the full-employment GDP for the above economy is at L, the:

Correct AnswerverifiedShow Answer

A contractionary fiscal policy shifts the aggregate demand curve leftward and may or may not reduce real GDP.

Correct AnswerverifiedShow Answer

The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.

Correct AnswerverifiedShow Answer

One of the timing problems with fiscal policy is an "operational lag" that occurs between the:

Correct AnswerverifiedShow Answer

Which policy to finance the public debt might crowd-out private spending?

Correct AnswerverifiedShow Answer

A tax reduction of a specific amount will be more expansionary, the:

Correct AnswerverifiedShow Answer

Increased government spending for investments such as highways or harbours financed by increasing the public debt would most likely:

Correct AnswerverifiedShow Answer

Countercyclical discretionary fiscal policy calls for:

Correct AnswerverifiedShow Answer

The crowding-out effect from government borrowing to finance the public debt is reduced when:

Correct AnswerverifiedShow Answer

Expansionary fiscal policy is so-named because it involves an expansion of the nation's money supply.

Correct AnswerverifiedShow Answer

The crowding-out effect arises when:

Correct AnswerverifiedShow Answer

To understand the quantitative significance of the public debt relative to the economy, it should be:

Correct AnswerverifiedShow Answer

An appropriate fiscal policy for severe demand-pull inflation is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following represents the most contractionary fiscal policy?

Correct AnswerverifiedShow Answer

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