Question 1

The 2008 and 2009 major fiscal stimulus bills were motivated by the serious economic recession that hit the United States in 2008, and can be classified as "countercyclical."

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following statements is true?

Accepted Answer

A)  There is no relationship between the federal deficit and the federal debt. 
B)  A federal deficit adds to the federal debt. 
C)  The change in the federal deficit each year equals the federal debt. 
D)  The federal debt is the same as the federal deficit. 
E)  The federal debt grew in the period when there was a federal budget surplus. 
A)  There is no relationship between the federal deficit and the federal debt. 
B)  A federal deficit adds to the federal debt. 
C)  The change in the federal deficit each year equals the federal debt. 
D)  The federal debt is the same as the federal deficit. 
E)  The federal debt grew in the period when there was a federal budget surplus. B

Question 3

Exhibit 26-1  
-According to Exhibit 26-1, when real GDP equals potential GDP,

Accepted Answer

A)  the cyclical budget is less than the structural budget. 
B)  there is a budget deficit. 
C)  the budget is balanced. 
D)  there is a budget surplus. 
E)  the cyclical budget is greater than the structural budget. 
A)  the cyclical budget is less than the structural budget. 
B)  there is a budget deficit. 
C)  the budget is balanced. 
D)  there is a budget surplus. 
E)  the cyclical budget is greater than the structural budget. D

Question 4

If real GDP is equal to potential GDP, the cyclical surplus is zero.

Accepted Answer

A) True 
 B)False

Question 5

When using discretionary fiscal policy to counter a fluctuation in the economy, policymakers should

Accepted Answer

A)  make sure the policy is carried out in a timely manner. 
B)  use government purchases as an instrument only if the economy is in a recession. 
C)  use taxes as an instrument only if the economy is in a boom. 
D)  make sure that changes in government purchases will have an effect on real GDP. 
E)  make sure that transfer payments are held constant. 
A)  make sure the policy is carried out in a timely manner. 
B)  use government purchases as an instrument only if the economy is in a recession. 
C)  use taxes as an instrument only if the economy is in a boom. 
D)  make sure that changes in government purchases will have an effect on real GDP. 
E)  make sure that transfer payments are held constant.

Question 6

The debt to GDP ratio grows every time there is a deficit.

Accepted Answer

A) True 
 B)False

Question 7

The symbol G used throughout the text stands for

Accepted Answer

A)  federal government expenditures. 
B)  purchases of goods and services by the federal government. 
C)  federal plus state and local government purchases of goods and services. 
D)  federal plus state and local government expenditures. 
E)  the difference between expenditures and tax revenues for the federal, state, and local governments. 
A)  federal government expenditures. 
B)  purchases of goods and services by the federal government. 
C)  federal plus state and local government purchases of goods and services. 
D)  federal plus state and local government expenditures. 
E)  the difference between expenditures and tax revenues for the federal, state, and local governments.

Question 8

The aim of countercyclical fiscal policy is to

Accepted Answer

A)  shift the inflation adjustment line so that real GDP is equal to potential GDP. 
B)  reduce unemployment. 
C)  reduce inflation. 
D)  increase potential GDP. 
E)  shift the aggregate demand curve so that real GDP equals potential GDP. 
A)  shift the inflation adjustment line so that real GDP is equal to potential GDP. 
B)  reduce unemployment. 
C)  reduce inflation. 
D)  increase potential GDP. 
E)  shift the aggregate demand curve so that real GDP equals potential GDP.

Question 9

Automatic fiscal policy is an example of a policy rule.

Accepted Answer

A) True 
 B)False

Question 10

Answer the questions below:
(A)Suppose real GDP is less than potential GDP. Use a diagram with inflation on the vertical axis and percentage deviation of real GDP from potential GDP on the horizontal axis to show the short-run and long-run effects of a tax cut on the inflation rate and real GDP.
(B)Explain the tradeoff that has been made between unemployment and inflation.
(C)Suppose that, by the time the tax cut was in place, real GDP was again equal to potential GDP. Trace the short-run and long-run results on the same diagram.

Accepted Answer

(A)Assume we start at point A. If there

Question 11

At any one time, there can be discussions in Congress about only one year's budget.

Accepted Answer

A) True 
 B)False

Question 12

To reduce the size of economic fluctuations, the government could

Accepted Answer

A)  make fewer permanent changes in government spending. 
B)  change government purchases often to encourage a shift of the aggregate demand curve. 
C)  increase spending during a recession and decrease spending during an expansion. 
D)  keep government spending fixed to avoid shifting the aggregate demand curve. 
E)  continually increase government spending to shift the aggregate demand curve to the right. 
A)  make fewer permanent changes in government spending. 
B)  change government purchases often to encourage a shift of the aggregate demand curve. 
C)  increase spending during a recession and decrease spending during an expansion. 
D)  keep government spending fixed to avoid shifting the aggregate demand curve. 
E)  continually increase government spending to shift the aggregate demand curve to the right.

Question 13

If taxes became more progressive, we would expect that whenever there was an economic fluctuation

Accepted Answer

A)  there would be no difference in how automatic changes in taxes affected spending. 
B)  automatic changes in taxes would become less stabilizing. 
C)  discretionary fiscal policy would become more effective. 
D)  automatic changes in taxes would become more stabilizing. 
E)  discretionary fiscal policy would become less effective. 
A)  there would be no difference in how automatic changes in taxes affected spending. 
B)  automatic changes in taxes would become less stabilizing. 
C)  discretionary fiscal policy would become more effective. 
D)  automatic changes in taxes would become more stabilizing. 
E)  discretionary fiscal policy would become less effective.

Question 14

What are the major categories of taxes collected by the federal government? Which of these categories is the largest source of revenue? Which is the smallest source of revenue?

Accepted Answer

The major categories are perso

Question 15

The year 2001 was the ____ consecutive year the U.S. federal government had been running a budget ____.

Accepted Answer

A)  fourth; surplus 
B)  fourth; deficit 
C)  twenty-eighth; surplus 
D)  twenty-eighth; deficit 
E)  second; surplus 
A)  fourth; surplus 
B)  fourth; deficit 
C)  twenty-eighth; surplus 
D)  twenty-eighth; deficit 
E)  second; surplus

Question 16

Tax cuts as part of a countercyclical policy have

Accepted Answer

A)  in most cases been able to offset the effects of a recession. 
B)  always been successful. 
C)  been able at best to speed up the recovery from recession. 
D)  rarely had any positive long-run effect. 
E)  never been used. 
A)  in most cases been able to offset the effects of a recession. 
B)  always been successful. 
C)  been able at best to speed up the recovery from recession. 
D)  rarely had any positive long-run effect. 
E)  never been used.

Question 17

Increasing government purchases can contribute to higher inflation.

Accepted Answer

A) True 
 B)False

Question 18

Suppose as a professional economist you are asked to take part in a debate about the wisdom of pursuing discretionary fiscal policy versus relying on automatic stabilizers. Outline some of the pros and cons for each side of the debate.

Accepted Answer

Answers will vary. The pros of discretio

Question 19

Suppose you have the following data on projected and actual figures for the U.S. budget for 2001 (in billions of dollars):   (A)What was the projected budget deficit? What was the actual budget deficit? Why did this happen?
(B)If the government debt was $3,530 billion at the end of 2000, what was the debt at the end of 2001?
(C)If GDP was $9,500 billion in 2001, what was the debt to GDP ratio? How does this compare to 1992's debt to GDP ratio?

Accepted Answer

(A)The projected deficit in 2001 was $10

Question 20

Suppose the economy is initially in equilibrium, and real and potential GDP are equal. Now, suppose export orders increase. Under these circumstances, which of the following statements is true?

Accepted Answer

A)  If the countercyclical fiscal policy response is made correctly, the new equilibrium will in the long run have a higher rate of inflation than if no response had been made. 
B)  If the countercyclical fiscal policy response is made correctly, the new equilibrium will in the long run have a lower rate of inflation than if no response had been made. 
C)  The inflation rate in the new long-run equilibrium will be the same, whether or not countercyclical fiscal policy is used. 
D)  If the countercyclical fiscal policy response is implemented too late, the new long-run equilibrium will have a higher rate of inflation than if no response had been made. 
E)  Countercyclical fiscal policy is unable to counter the effect of changes in export orders on real GDP. 
A)  If the countercyclical fiscal policy response is made correctly, the new equilibrium will in the long run have a higher rate of inflation than if no response had been made. 
B)  If the countercyclical fiscal policy response is made correctly, the new equilibrium will in the long run have a lower rate of inflation than if no response had been made. 
C)  The inflation rate in the new long-run equilibrium will be the same, whether or not countercyclical fiscal policy is used. 
D)  If the countercyclical fiscal policy response is implemented too late, the new long-run equilibrium will have a higher rate of inflation than if no response had been made. 
E)  Countercyclical fiscal policy is unable to counter the effect of changes in export orders on real GDP.

Exam 14: Fiscal Policy

The 2008 and 2009 major fiscal stimulus bills were motivated by the serious economic recession that hit the United States in 2008, and can be classified as "countercyclical."

Which of the following statements is true?

Exhibit 26-1 -According to Exhibit 26-1, when real GDP equals potential GDP,

If real GDP is equal to potential GDP, the cyclical surplus is zero.

When using discretionary fiscal policy to counter a fluctuation in the economy, policymakers should

The debt to GDP ratio grows every time there is a deficit.

The symbol G used throughout the text stands for

The aim of countercyclical fiscal policy is to

Automatic fiscal policy is an example of a policy rule.

At any one time, there can be discussions in Congress about only one year's budget.

To reduce the size of economic fluctuations, the government could

If taxes became more progressive, we would expect that whenever there was an economic fluctuation

What are the major categories of taxes collected by the federal government? Which of these categories is the largest source of revenue? Which is the smallest source of revenue?

The year 2001 was the ____ consecutive year the U.S. federal government had been running a budget ____.

Tax cuts as part of a countercyclical policy have

Increasing government purchases can contribute to higher inflation.

Suppose as a professional economist you are asked to take part in a debate about the wisdom of pursuing discretionary fiscal policy versus relying on automatic stabilizers. Outline some of the pros and cons for each side of the debate.

Suppose the economy is initially in equilibrium, and real and potential GDP are equal. Now, suppose export orders increase. Under these circumstances, which of the following statements is true?

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Monetary Policy

Capital and Financial Markets

Economic Growth and Globalization

International Trade

International Finance

Reading, Understanding, and Creating Graphs

the Miracle of Compound Growth

Present Discounted Value

Deriving the Growth Accounting Formula

Filters

The year 2001 was the consecutive year the U.S. federal government had been running a budget .