Question 1

The crowding-out effect can be mitigated if the funds from deficit spending are used for public investment.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following statements is NOT a potential problem associated with cyclically balancing the federal budget?

Accepted Answer

A)  Different phases of the business cycle are not of equal length or severity. 
B)  Forecasting the turning point of the economy is very difficult. 
C)  Inflationary pressures can take hold, leading to the need to enact extreme contractionary policy measures. 
D)  Politicians find it difficult to cut spending. 
A)  Different phases of the business cycle are not of equal length or severity. 
B)  Forecasting the turning point of the economy is very difficult. 
C)  Inflationary pressures can take hold, leading to the need to enact extreme contractionary policy measures. 
D)  Politicians find it difficult to cut spending. C

Question 3

Which of the following is an example of an automatic stabilizer?

Accepted Answer

A)  consumers spending more when the economy is strong 
B)  business laying off workers during a recession 
C)  unemployed workers claiming unemployment benefits during a recession 
D)  the government raising interest rates to reduce inflation 
A)  consumers spending more when the economy is strong 
B)  business laying off workers during a recession 
C)  unemployed workers claiming unemployment benefits during a recession 
D)  the government raising interest rates to reduce inflation C

Question 4

Taxes constitute the removal of income from the spending-income cycle.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is (are) true? I. Politicians are more likely to use expansionary policies financed by deficit spending.
II) A public choice economist would argue that politicians are more likely to develop expansionary fiscal policy that maintains a balanced budget.
III) James Buchanan argued that using deficits to finance expansionary fiscal policies shifts government costs from future generations to present generations.

Accepted Answer

A)  I only 
B)  II only 
C)  III only 
D)  I, II, and III. 
A)  I only 
B)  II only 
C)  III only 
D)  I, II, and III.

Question 6

Suppose the economy is in a recession. To increase demand using discretionary fiscal policy, the government can:

Accepted Answer

A)  raise interest rates. 
B)  raise taxes or reduce government spending. 
C)  increase government spending or reduce taxes. 
D)  reduce interest rates. 
A)  raise interest rates. 
B)  raise taxes or reduce government spending. 
C)  increase government spending or reduce taxes. 
D)  reduce interest rates.

Question 7

Disposable income is equal to:

Accepted Answer

A)  Y - T. 
B)  Y + T. 
C)  T - Y. 
D)  X - M. 
A)  Y - T. 
B)  Y + T. 
C)  T - Y. 
D)  X - M.

Question 8

When the economy is below full employment, expansionary fiscal policy:

Accepted Answer

A)  shifts the aggregate demand curve to the left. 
B)  shifts the short-run aggregate supply curve to the right. 
C)  causes a movement down along the aggregate demand curve. 
D)  shifts the aggregate demand curve to the right. 
A)  shifts the aggregate demand curve to the left. 
B)  shifts the short-run aggregate supply curve to the right. 
C)  causes a movement down along the aggregate demand curve. 
D)  shifts the aggregate demand curve to the right.

Question 9

In terms of the Laffer curve, when tax rates are zero:

Accepted Answer

A)  tax revenues are positive. 
B)  tax revenues are negative. 
C)  tax revenues are zero. 
D)  there is no relationship between tax revenues and tax rates. 
A)  tax revenues are positive. 
B)  tax revenues are negative. 
C)  tax revenues are zero. 
D)  there is no relationship between tax revenues and tax rates.

Question 10

Externally held debt is owed to noncitizens.

Accepted Answer

A) True 
 B)False

Question 11

The notion of functional finance says that:

Accepted Answer

A)  the economic function of the President is to maintain a balanced budget. 
B)  the government should not focus on any deficits or surpluses caused by the budget but instead focus on maintaining the economy at full employment. 
C)  the government should function as a financial leader in the economy. 
D)  the government's budget should always be balanced over the course of the business cycle. 
A)  the economic function of the President is to maintain a balanced budget. 
B)  the government should not focus on any deficits or surpluses caused by the budget but instead focus on maintaining the economy at full employment. 
C)  the government should function as a financial leader in the economy. 
D)  the government's budget should always be balanced over the course of the business cycle.

Question 12

Graphically, expansionary fiscal policy is displayed by a shift to the _____ in aggregate _____.

Accepted Answer

A)  right; supply 
B)  right; demand 
C)  left; supply 
D)  left; demand 
A)  right; supply 
B)  right; demand 
C)  left; supply 
D)  left; demand

Question 13

What type of government spending would be most effective in mitigating the crowding-out effect?

Accepted Answer

A)  education subsidies 
B)  subsidies to private airports 
C)  military spending 
D)  increased salaries for the presidential staff 
A)  education subsidies 
B)  subsidies to private airports 
C)  military spending 
D)  increased salaries for the presidential staff

Question 14

The U.S. public debt is about 90% of its GDP.

Accepted Answer

A) True 
 B)False

Question 15

In the history of the United States, public debt as a percentage of GDP:

Accepted Answer

A)  is fixed by law. 
B)  tends to decrease during times of war. 
C)  varies widely over time. 
D)  tends to be zero percent. 
A)  is fixed by law. 
B)  tends to decrease during times of war. 
C)  varies widely over time. 
D)  tends to be zero percent.

Question 16

If, for country A, the present value of all projected future revenues is $400 million and the present value of all projected future spending is $412 million, then country A's fiscal policy is sustainable.

Accepted Answer

A) True 
 B)False

Question 17

If the ultimate goal of fiscal policy aimed at aggregate supply is achieved, what happens to the aggregate price level and aggregate output?

Accepted Answer

A)  aggregate price level decreases; aggregate output decreases 
B)  aggregate price level increases; aggregate output increases 
C)  aggregate price level decreases; aggregate output increases 
D)  aggregate price level increases; aggregate output decreases 
A)  aggregate price level decreases; aggregate output decreases 
B)  aggregate price level increases; aggregate output increases 
C)  aggregate price level decreases; aggregate output increases 
D)  aggregate price level increases; aggregate output decreases

Question 18

The wage rate changes that lead to equilibrium in the labor market are automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 19

Countries such as China often purchase U.S. debt to help manage their exchange rates against the U.S. dollar.

Accepted Answer

A) True 
 B)False

Question 20

In the United States, what three entities must agree on spending and taxation policies?

Accepted Answer

A)  the President, the Senate, and the Supreme Court 
B)  the President, the House of Representatives, and the Supreme Court 
C)  the President, the Senate, and a majority of state governors 
D)  the President, the House of Representatives, and the Senate 
A)  the President, the Senate, and the Supreme Court 
B)  the President, the House of Representatives, and the Supreme Court 
C)  the President, the Senate, and a majority of state governors 
D)  the President, the House of Representatives, and the Senate

The crowding-out effect can be mitigated if the funds from deficit spending are used for public investment.

Which of the following statements is NOT a potential problem associated with cyclically balancing the federal budget?

Which of the following is an example of an automatic stabilizer?

Taxes constitute the removal of income from the spending-income cycle.

Suppose the economy is in a recession. To increase demand using discretionary fiscal policy, the government can:

Disposable income is equal to:

When the economy is below full employment, expansionary fiscal policy:

In terms of the Laffer curve, when tax rates are zero:

Externally held debt is owed to noncitizens.

The notion of functional finance says that:

Graphically, expansionary fiscal policy is displayed by a shift to the _ in aggregate _.

What type of government spending would be most effective in mitigating the crowding-out effect?

The U.S. public debt is about 90% of its GDP.

In the history of the United States, public debt as a percentage of GDP:

If, for country A, the present value of all projected future revenues is $400 million and the present value of all projected future spending is $412 million, then country A's fiscal policy is sustainable.

If the ultimate goal of fiscal policy aimed at aggregate supply is achieved, what happens to the aggregate price level and aggregate output?

The wage rate changes that lead to equilibrium in the labor market are automatic stabilizers.

Countries such as China often purchase U.S. debt to help manage their exchange rates against the U.S. dollar.

In the United States, what three entities must agree on spending and taxation policies?

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomics

Filters

Exam 10: Fiscal Policy and Debt

The crowding-out effect can be mitigated if the funds from deficit spending are used for public investment.

Which of the following statements is NOT a potential problem associated with cyclically balancing the federal budget?

Which of the following is an example of an automatic stabilizer?

Taxes constitute the removal of income from the spending-income cycle.

Suppose the economy is in a recession. To increase demand using discretionary fiscal policy, the government can:

Disposable income is equal to:

When the economy is below full employment, expansionary fiscal policy:

In terms of the Laffer curve, when tax rates are zero:

Externally held debt is owed to noncitizens.

The notion of functional finance says that:

Graphically, expansionary fiscal policy is displayed by a shift to the _____ in aggregate _____.

What type of government spending would be most effective in mitigating the crowding-out effect?

The U.S. public debt is about 90% of its GDP.

In the history of the United States, public debt as a percentage of GDP:

If, for country A, the present value of all projected future revenues is $400 million and the present value of all projected future spending is $412 million, then country A's fiscal policy is sustainable.

If the ultimate goal of fiscal policy aimed at aggregate supply is achieved, what happens to the aggregate price level and aggregate output?

The wage rate changes that lead to equilibrium in the labor market are automatic stabilizers.

Countries such as China often purchase U.S. debt to help manage their exchange rates against the U.S. dollar.

In the United States, what three entities must agree on spending and taxation policies?

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomics

Filters

Graphically, expansionary fiscal policy is displayed by a shift to the _ in aggregate _.