Question 1

As of 2015, more than half of the total debt of the U.S.government was owed to foreigners.

Accepted Answer

A) True 
 B)False

Question 2

Economists refer to a budget deficit that exists when the economy is achieving full employment as a

Accepted Answer

A)  cyclical deficit.
B)  cyclically adjusted deficit.
C)  natural deficit.
D)  nonrecurring deficit.E) None of the above
F) B) and C) B

Question 3

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 4

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) A) and B)
F) B) and D)

Question 5

Assume that if there were no crowding out, an increase in government spending would increase GDP by $100 billion.If there had been partial crowding out, however, then GDP would have

Accepted Answer

A)  increased by more than $100 billion.
B)  increased by less than $100 billion.
C)  increased by $100 billion.
D)  not increased.E) None of the above
F) B) and C)

Question 6

If the government wants to reduce unemployment using fiscal policy, it may do so by increasing government spending.

Accepted Answer

A) True 
 B)False

Question 7

Without a change in discretionary fiscal policy, we would expect that if the economy goes into recession, then the

Accepted Answer

A)  cyclically adjusted deficit and the actual deficit would both increase.
B)  cyclically adjusted deficit and the actual deficit would both decrease.
C)  cyclically adjusted deficit would stay the same while the actual deficit would increase.
D)  cyclically adjusted deficit would increase while the actual deficit would stay the same.E) A) and C)
F) A) and B)

Question 8

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 policy.E) None of the above
F) A) and D) B

Question 9

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) None of the above
F) A) and C)

Question 10

The crowding-out effect refers to the possibility that deficit spending may motivate people to increase their saving in anticipation of higher future taxes.

Accepted Answer

A) True 
 B)False

Question 11

Most of the U.S.public debt is owed to the nation's citizens and domestic institutions.This is one reason that the public debt

Accepted Answer

A)  crowds out private investment.
B)  does not impose a large burden on future generations.
C)  has a procyclical economic effect on the economy.
D)  can result in the bankruptcy of the Federal government.E) A) and C)
F) A) and B)

Question 12

If the cyclically adjusted budget has a zero deficit but the actual budget has a $100 billion deficit, then that means that the government is pursuing an expansionary fiscal policy.

Accepted Answer

A) True 
 B)False  False

Question 13

If the government wishes to increase the level of real GDP, it might reduce

Accepted Answer

A)  taxes.
B)  transfer payments.
C)  the size of the budget deficit.
D)  its purchases of goods and services.E) A) and B)
F) All of the above

Question 14

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 investment.E) A) and D)
F) C) and D)

Question 15

The public debt is the accumulation of all deficits and surpluses that have occurred through time.

Accepted Answer

A) True 
 B)False

Question 16

The cyclically adjusted budget refers to

Accepted Answer

A)  the inflationary impact that the automatic stabilizers have in a full-employment economy.
B)  that portion of a full-employment GDP that is not consumed in the year it is produced.
C)  the size of the federal government's budgetary surplus or deficit when the economy is operating at full employment.
D)  the number of workers who are underemployed when the level of unemployment is 4 to 5 percent.E) C) and D)
F) A) and B)

Question 17

The operational lag of fiscal policy refers to the time that elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Accepted Answer

A) True 
 B)False

Question 18

The flexibility of the price level tends to dampen the multiplier effect of fiscal policy.

Accepted Answer

A) True 
 B)False

Question 19

From 2010 to 2015, the actual as well as the cyclically adjusted federal budget deficits as percentages of GDP in the U.S.have

Accepted Answer

A)  risen exponentially.
B)  increased slowly.
C)  remained roughly constant.
D)  decreased.E) None of the above
F) All of the above

Question 20

Which of the following is the best example of public investment?

Accepted Answer

A)  salaries of senators and representatives
B)  government expenditures on food assistance programs
C)  construction of highways
D)  funding of regulatory agenciesE) All of the above
F) None of the above

Exam 33: Fiscal Policy, Deficits, and Debt

As of 2015, more than half of the total debt of the U.S.government was owed to foreigners.

Correct AnswerverifiedShow Answer

Economists refer to a budget deficit that exists when the economy is achieving full employment as a

Correct AnswerverifiedB

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

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

Assume that if there were no crowding out, an increase in government spending would increase GDP by $100 billion.If there had been partial crowding out, however, then GDP would have

Correct AnswerverifiedShow Answer

If the government wants to reduce unemployment using fiscal policy, it may do so by increasing government spending.

Correct AnswerverifiedShow Answer

Without a change in discretionary fiscal policy, we would expect that if the economy goes into recession, then the

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 AnswerverifiedB

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

Correct AnswerverifiedShow Answer

The crowding-out effect refers to the possibility that deficit spending may motivate people to increase their saving in anticipation of higher future taxes.

Correct AnswerverifiedShow Answer

Most of the U.S.public debt is owed to the nation's citizens and domestic institutions.This is one reason that the public debt

Correct AnswerverifiedShow Answer

If the cyclically adjusted budget has a zero deficit but the actual budget has a $100 billion deficit, then that means that the government is pursuing an expansionary fiscal policy.

Correct AnswerverifiedFalse

If the government wishes to increase the level of real GDP, it might reduce

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

The public debt is the accumulation of all deficits and surpluses that have occurred through time.

Correct AnswerverifiedShow Answer

The cyclically adjusted budget refers to

Correct AnswerverifiedShow Answer

The operational lag of fiscal policy refers to the time that elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Correct AnswerverifiedShow Answer

The flexibility of the price level tends to dampen the multiplier effect of fiscal policy.

Correct AnswerverifiedShow Answer

From 2010 to 2015, the actual as well as the cyclically adjusted federal budget deficits as percentages of GDP in the U.S.have

Correct AnswerverifiedShow Answer

Which of the following is the best example of public investment?

Correct AnswerverifiedShow Answer

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B

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False

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