Question 1

Changes in government purchases always lead to fluctuations of real GDP from potential.

Accepted Answer

A) True 
 B)False  False

Question 2

Suppose that,because of a large increase in export orders in a hypothetical economy in the year 2001,real GDP follows the path ABCDE in the figure below.Suppose discretionary policy was used,but it was implemented too late.Show how the path in the figure below would change.Show what this looks like using the IA-AD curve analysis.

Accepted Answer

Real GDP will follow the path ABFE as shown Figure I below.This will cause real GDP to fall below potential GDP,sending the economy into a recession. The increase in export orders will result in the economy being at point a along AD₁ in Figure II below.In the medium run,as the economy approaches point b along AD₁,discretionary policy is enacted,causing the AD curve to shift back to AD₂.This results in real GDP falling below potential GDP,sending the economy into a recession.

Question 3

The president can change only a small part of the budget each year.

Accepted Answer

A) True 
 B)False  True

Question 4

Increasing government purchases can contribute to higher inflation.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Which of the following statements is true?

Accepted Answer

A) The budget is not affected by unanticipated economic events such as recessions. 
B) The budget is not affected by unanticipated wars and natural disasters. 
C) Changes in spending programs can be made throughout the fiscal year. 
D) Congress seldom modifies the president's budget proposal. 
E) Congress cannot modify the budget once it is enacted. 
A) The budget is not affected by unanticipated economic events such as recessions. 
B) The budget is not affected by unanticipated wars and natural disasters. 
C) Changes in spending programs can be made throughout the fiscal year. 
D) Congress seldom modifies the president's budget proposal. 
E) Congress cannot modify the budget once it is enacted.

Question 7

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 8

Most state and local government expenditures are for purchases of goods and services.

Accepted Answer

A) True 
 B)False

Question 9

Why is discretionary fiscal policy considered risky or somewhat uncertain?

Accepted Answer

The exact effect on real GDP is uncertai

Question 10

What is the difference between the deficit and the debt?

Accepted Answer

The federal debt is the total

Question 11

The president and Congress typically settle on the budget before the beginning of the fiscal year.

Accepted Answer

A) True 
 B)False

Question 12

The structural budget surplus is the size of the budget surplus when

Accepted Answer

A) there is a spending balance. 
B) the AD curve intersects the IA line. 
C) the unemployment rate is zero. 
D) the economy is in an expansion. 
E) real and potential GDP are equal. 
A) there is a spending balance. 
B) the AD curve intersects the IA line. 
C) the unemployment rate is zero. 
D) the economy is in an expansion. 
E) real and potential GDP are equal.

Question 13

In which of the following years was the debt to GDP ratio the highest?

Accepted Answer

A) 1960 
B) 1950 
C) 1973 
D) 1992 
E) 1985 
A) 1960 
B) 1950 
C) 1973 
D) 1992 
E) 1985

Question 14

A change in taxes can affect potential GDP.

Accepted Answer

A) True 
 B)False

Question 15

To determine the size of the automatic stabilizer in 2011,

Accepted Answer

A) calculate the difference between the taxes and spending proposed for 2011 and the actual taxes and spending in 2011. 
B) compare the budget proposed by the president with the budget passed by Congress. 
C) compare the size of the budget calculated by the president with the size of the budget calculated by the Congressional Budget Office (CBO). 
D) read the language of the FY2011 Budget. 
E) None of these 
A) calculate the difference between the taxes and spending proposed for 2011 and the actual taxes and spending in 2011. 
B) compare the budget proposed by the president with the budget passed by Congress. 
C) compare the size of the budget calculated by the president with the size of the budget calculated by the Congressional Budget Office (CBO). 
D) read the language of the FY2011 Budget. 
E) None of these

Question 16

Countercyclical fiscal policy is risky because

Accepted Answer

A) it tends to increase the national debt. 
B) real GDP is likely to be close to potential GDP by the time the policy takes effect. 
C) it tends to have no effect on unemployment. 
D) it tends to make recessions more severe. 
E) it tends to result in higher inflation. 
A) it tends to increase the national debt. 
B) real GDP is likely to be close to potential GDP by the time the policy takes effect. 
C) it tends to have no effect on unemployment. 
D) it tends to make recessions more severe. 
E) it tends to result in higher inflation.

Question 17

If real GDP equals B in the figure below,then

Accepted Answer

A) None of these 
B) there is a structural surplus. 
C) there is a structural deficit. 
D) the difference between government expenditures and tax revenue is equal to zero. 
E) real GDP equals potential GDP. 
A) None of these 
B) there is a structural surplus. 
C) there is a structural deficit. 
D) the difference between government expenditures and tax revenue is equal to zero. 
E) real GDP equals potential GDP.

Question 18

For a hypothetical economy in 2010,the deficit was $300 billion,the national debt was $3,800 billion,and the average interest rate on the federal debt was 6.0 percent.The amount of interest payments made that year was

Accepted Answer

A) $246 billion. 
B) $270 billion. 
C) $228 billion. 
D) $18 billion. 
E) $225 billion. 
A) $246 billion. 
B) $270 billion. 
C) $228 billion. 
D) $18 billion. 
E) $225 billion.

Question 19

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

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 26: Fiscal Policy

Changes in government purchases always lead to fluctuations of real GDP from potential.

The president can change only a small part of the budget each year.

Increasing government purchases can contribute to higher inflation.

The aim of countercyclical fiscal policy is to

Which of the following statements is true?

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

Most state and local government expenditures are for purchases of goods and services.

Why is discretionary fiscal policy considered risky or somewhat uncertain?

What is the difference between the deficit and the debt?

The president and Congress typically settle on the budget before the beginning of the fiscal year.

The structural budget surplus is the size of the budget surplus when

In which of the following years was the debt to GDP ratio the highest?

A change in taxes can affect potential GDP.

To determine the size of the automatic stabilizer in 2011,

Countercyclical fiscal policy is risky because

If real GDP equals B in the figure below,then

For a hypothetical economy in 2010,the deficit was $300 billion,the national debt was $3,800 billion,and the average interest rate on the federal debt was 6.0 percent.The amount of interest payments made that year was

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."

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

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

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, transfers, and Income Distribution

Public Goods, externalities, and Government Behavior

Capital and Financial Markets

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

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Monetary Policy

Economic Growth and Globalization

International Trade

International Finance

Reading,understanding,and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Present Discounted Value

The Miracle of Compound Growth

Deriving the Growth Accounting Formula

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

Filters

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