Question 1

Actions by the federal government that decrease the progressivity of the tax system

Accepted Answer

A)   decrease the amount of government spending.
B)   increase the effect of automatic stabilizers.
C)   decrease the effect of automatic stabilizers.
D)   increase the multiplier effect.E) All of the above
F) None of the above

Question 2

Which of the following ﬁscal policy changes would be the most contractionary?

Accepted Answer

A)   a $40 billion increase in taxes
B)   a $10 billion increase in taxes and a $30 billion cut in government spending
C)   a $20 billion increase in taxes and a $20 billion cut in government spending
D)   a $30 billion increase in taxes and a $10 billion cut in government spendingE) A) and B)
F) A) and C)

Question 3

If Congress adjusted the U.S. tax system so that the MPC was reduced, the

Accepted Answer

A)   economy would become more inﬂation prone.
B)   economy would become less stable.
C)   stability of the economy would be unaffected.
D)   economy would become more stable.E) A) and D)
F) B) and C)

Question 4

Explain the crowding-out effect.

Accepted Answer

The crowding-out effect occurs when expa...

Question 5

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 6

Refer to the diagram. If the full-employment level of GDP is D, then it would be appropriate ﬁscal policy for government to

Accepted Answer

A)   decrease spending and increase taxes.
B)   decrease spending and decrease taxes.
C)   increase spending and increase taxes.
D)   increase spending and decrease taxes.E) A) and B)
F) A) and C)

Question 7

Accepted Answer

A)   the shift of curve  T1 to T2T _ { 1 } 	ext { to } T _ { 2 }T1​ to T2​ 
B)   the shift of curve  T2 to T1. T _ { 2 } 	ext { to } T _ { 1 } 	ext {. }T2​ to T1​.  
C)   a movement from a to c along curve  T2T _ { 2 }T2​ 
D)   a movement from d to b along curve  T1.T _ { 1 } .T1​.E) B) and C)
F) A) and D)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Refer to the graph. Automatic stability in this economy could be enhanced by

Accepted Answer

A)   changing the tax system so that the tax line has a steeper slope.
B)   changing the tax system so that the tax line is shifted upward but parallel to its present position.
C)   changing the government expenditures line so that it has a positive slope.
D)   changing the tax system so that the tax line has a ﬂatter slope.E) B) and D)
F) B) and C)

Question 10

Which of the following is not a similarity between Medicare and Social Security?

Accepted Answer

A)   They are both "pay-as-you-go" plans.
B)   Their trust funds are both projected to be depleted within the next 15 years.
C)   Contributions are collected from both employers and employees.
D)   They are both intended to beneﬁt older current workers.E) A) and B)
F) B) and C)

Question 11

The public debt is the

Accepted Answer

A)   amount of U.S. paper currency in circulation.
B)   ratio of all past deﬁcits to all past surpluses.
C)   accumulation of all past deﬁcits minus all past surpluses.
D)   difference between current government expenditures and current tax revenues.E) A) and C)
F) B) and C)

Question 12

Refer to the diagram, where T is tax revenues and G is government expenditures. All ﬁgures are in billions of dollars. If the full-employment GDP is $400 billion, while the actual GDP is $200 billion, the

Accepted Answer

A)   actual budget deﬁcit exceeds the cyclically adjusted budget deﬁcit.
B)   actual budget deﬁcit is less than the cyclically adjusted budget deﬁcit.
C)   cyclically adjusted deﬁcit exceeds the cyclical deﬁcit.
D)   cyclical deﬁcit exceeds the cyclically adjusted deﬁcit.E) A) and B)
F) None of the above

Question 13

Year  Actual Budget, Percent of GDP  (-deficits, +surpluses)   Cyclically-Adjusted Budget, Percent of GDP  (-deficits, +surpluses)  1002−303−5−24−2−25+2+1\begin{array} { | c | c | c | } \hline 	ext { Year } & \begin{array} { c } 	ext { Actual Budget, Percent of GDP } \	ext { (-deficits, +surpluses)  }\end{array} & \begin{array} { c } 	ext { Cyclically-Adjusted Budget, Percent of GDP } \	ext { (-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} Year 12345​ Actual Budget, Percent of GDP  (-deficits, +surpluses)  ​0−3−5−2+2​ Cyclically-Adjusted Budget, Percent of GDP  (-deficits, +surpluses)  ​00−2−2+1​​  Refer to the data for a ?ctional economy. The changes in the budget conditions between Year 1 and 2 best re?ect

Accepted Answer

A)   demand-pull in?ation.
B)   an expansionary ?scal policy.
C)   a recession.
D)   a contractionary ?scal policy. E) A) and D)
F) All of the above

Question 14

Built-in stability is synonymous with discretionary ﬁscal policy.

Accepted Answer

A) True 
 B)False

Question 15

Accepted Answer

A)   move the economy from point B towards point A
B)   move the economy from point B towards point C
C)   move the economy from point B downward along AD  AD2\mathrm { AD } _ { 2 }AD2​ 
D)   move the economy from point B upward along AD  AD2\mathrm { AD } _ { 2 }AD2​E) C) and D)
F) A) and B)

Question 16

If the economy is in a recession and prices are relatively stable, then the discretionary ﬁscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be

Accepted Answer

A)   increased government spending or increased taxation, or a combination of the two actions.
B)   increased government spending or decreased taxation, or a combination of the two actions.
C)   increased government spending or increased taxation, but not a combination of the two actions.
D)   decreased government spending or decreased taxation, or a combination of the two actions.E) B) and C)
F) All of the above

Question 17

When current tax revenues exceed current government expenditures and the economy is achieving full employment,

Accepted Answer

A)   the cyclically adjusted budget has neither a deﬁcit nor a surplus.
B)   the cyclically adjusted budget may have either a deﬁcit or a surplus.
C)   the cyclically adjusted budget has a surplus.
D)   the government is engaging in an expansionary ﬁscal policy.E) C) and D)
F) None of the above

Question 18

The U.S. public debt

Accepted Answer

A)   refers to the debts of all units of government-federal, state, and local.
B)   consists of the total debt of U.S. households, businesses, and government.
C)   refers to the collective amount that U.S. citizens and businesses owe to foreigners.
D)   consists of the historical accumulation of all past federal deﬁcits and surpluses.E) A) and B)
F) B) and C)

Question 19

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that
ﬁscal policy has turned more contractionary.

Accepted Answer

A) True 
 B)False

Question 20

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. This diagram portrays the idea of

Accepted Answer

A)   progressive taxation.
B)   built-in stability.
C)   the multiplier.
D)   discretionary ﬁscal policy.E) None of the above
F) A) and C)

Exam 13: Fiscal Policy, Deficits, and Debt

If Congress adjusted the U.S. tax system so that the MPC was reduced, the

Correct Answer
verified

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 Answer
verified

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. This diagram portrays the idea of

Correct Answer
verified

Which of the following is not a similarity between Medicare and Social Security?

Correct Answer
verified

The public debt is the

Correct Answer
verified

Correct Answer
verified

Built-in stability is synonymous with discretionary ﬁscal policy.

Correct Answer
verified

Explain the crowding-out effect.

Correct Answer
verified
The crowding-out effect occurs when expa...
View Answer

When current tax revenues exceed current government expenditures and the economy is achieving full employment,

Correct Answer
verified

Which of the following ﬁscal policy changes would be the most contractionary?

Correct Answer
verified

Actions by the federal government that decrease the progressivity of the tax system

Correct Answer
verified

Refer to the diagram, where T is tax revenues and G is government expenditures. All ﬁgures are in billions of dollars. If the full-employment GDP is $400 billion, while the actual GDP is $200 billion, the

Correct Answer
verified

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

Correct Answer
verified

$A) the shift of curve T _ { 1 } \text { to } T _ { 2 } B) the shift of curve T _ { 2 } \text { to } T _ { 1 } \text {. } C) a movement from a to c along curve T _ { 2 } D) a movement from d to b along curve T _ { 1 } .$

Correct Answer
verified

If the economy is in a recession and prices are relatively stable, then the discretionary ﬁscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be

Correct Answer
verified

$A) move the economy from point B towards point A B) move the economy from point B towards point C C) move the economy from point B downward along AD \mathrm { AD } _ { 2 } D) move the economy from point B upward along AD \mathrm { AD } _ { 2 }$

Correct Answer
verified

Refer to the diagram. If the full-employment level of GDP is D, then it would be appropriate ﬁscal policy for government to

Correct Answer
verified

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that ﬁscal policy has turned more contractionary.

Correct Answer
verified

The U.S. public debt

Correct Answer
verified

Refer to the graph. Automatic stability in this economy could be enhanced by

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, and Debt

If Congress adjusted the U.S. tax system so that the MPC was reduced, the

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

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. This diagram portrays the idea of

Correct AnswerverifiedShow Answer

Which of the following is not a similarity between Medicare and Social Security?

Correct AnswerverifiedShow Answer

The public debt is the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Built-in stability is synonymous with discretionary ﬁscal policy.

Correct AnswerverifiedShow Answer

Explain the crowding-out effect.

Correct AnswerverifiedThe crowding-out effect occurs when expa...View AnswerShow Answer

When current tax revenues exceed current government expenditures and the economy is achieving full employment,

Correct AnswerverifiedShow Answer

Which of the following ﬁscal policy changes would be the most contractionary?

Correct AnswerverifiedShow Answer

Actions by the federal government that decrease the progressivity of the tax system

Correct AnswerverifiedShow Answer

Refer to the diagram, where T is tax revenues and G is government expenditures. All ﬁgures are in billions of dollars. If the full-employment GDP is $400 billion, while the actual GDP is $200 billion, the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the economy is in a recession and prices are relatively stable, then the discretionary ﬁscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the diagram. If the full-employment level of GDP is D, then it would be appropriate ﬁscal policy for government to

Correct AnswerverifiedShow Answer

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that ﬁscal policy has turned more contractionary.

Correct AnswerverifiedShow Answer

The U.S. public debt

Correct AnswerverifiedShow Answer

Refer to the graph. Automatic stability in this economy could be enhanced by

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The crowding-out effect occurs when expa...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified