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Exam 13: Fiscal Policy, Deficits, and Debt

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Question 61

True/False

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The key to assessing whether fiscal policy is expansionary or not is to observe the change in the cyclically adjusted budget balance.

A) True
B) False

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Question 62

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Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that

A) reinforce changes in GDP.
B) help offset changes in GDP.
C) produce a cyclically adjusted budget.
D) produce a standardized budget.

E) None of the above
F) C) and D)

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Question 63

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

What are the differences among the actual deficit, the cyclically adjusted deficit, and the cyclical deficit?

The cyclically adjusted budget deficit in an economy is zero. If this economy goes into recession, then the actual government budget will be

Define contractionary fiscal policy. When should it be used?

The actual budget may be in deficit while the cyclically adjusted budget is in surplus.

A budget deficit causes the government to issue or sell Treasury bonds.

(Last Word) Which of the following would not help to relieve the Social Security and Medicare shortfalls?

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

$\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Actual Budget, Percent of GDP } \\\text { (-deficits, +surpluses) }\end{array} & \begin{array} { c } \text { Cyclically-Adjusted Budget, Percent of GDP } \\\text { (-deficits, +surpluses) }\end{array} \\\hline 1 & 0 & 0 \\\hline 2 & - 3 & 0 \\\hline 3 & - 5 & - 2 \\\hline 4 & - 2 & - 2 \\\hline 5 & + 2 & + 1 \\\hline\end{array}$ Refer to the table for a ?ctional economy. The changes in the budget conditions between Year 3 and 4 best re?ect

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

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

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

Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget rule that would require the Federal government to balance its budget during a recession would be

$\begin{array} { | c | c | c | c | } \hline & \begin{array} { c } \text { Government } \\\text { Spending }\end{array} & \text { Tax Revenues } & \text { GDP } \\\hline \text { Year 1 } & \$ 450 & \$ 425 & \$ 2,000 \\\hline \text { Year 2 } & 500 & 450 & 3,000 \\\hline \text { Year 3 } & 600 & 500 & 4,000 \\\hline \text { Year 4 } & 640 & 620 & 5,000 \\\hline \text { Year 5 } & 680 & 580 & 4,800 \\\hline \text { Year 6 } & 600 & 620 & 5,000 \\\hline\end{array}$ The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. The budget de?cit in year 3 is

Assume that if there were no crowding out, an increase in government spending would increase GDP by $100 billion. On the other hand, if there had been full crowding out, then GDP would have

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

If the cyclically adjusted budget shows a deficit of zero and the actual budget shows a deficit of about $150 billion, it can be concluded that there is