Question 1

If full-employment income and equilibrium income are equal for a country,then a tax cut will result in

Accepted Answer

A)  Excess AD.
B)  Output exceeding desired expenditure.
C)  Leakages exceeding injections.
D)  Undesired inventory accumulation. A

Question 2

Like deficit ceilings,debt ceilings are political mechanisms for forcing compromises on how best to use budget surpluses or deficits.
Deficit and debt ceilings are mechanisms for forcing Congress to adopt specific fiscal policies.

Accepted Answer

A) True 
 B)False  True

Question 3

The fiscal year for the federal government begins on

Accepted Answer

A)  January 1.
B)  The first Monday in January.
C)  November 1.
D)  October 1. D

Question 4

The national debt increased by nearly $2 trillion in the 1980s because of all of the following except

Accepted Answer

A)  Recessions.
B)  Tax cuts.
C)  Defense spending.
D)  College financing.

Question 5

Deficit financing tends to change the mix of output in the direction of more

Accepted Answer

A)  Private sector goods.
B)  International sector goods.
C)  Business sector goods.
D)  Public sector goods.

Question 6

Which of the following is an argument against balancing the federal budget?

Accepted Answer

A)  The federal government interferes with the economy too much.
B)  An increase in government spending and taxes by the same amount does not affect income.
C)  Doing so may prevent the government from pulling the economy out of recession.
D)  None of the choices are correct.

Question 7

Crowding out is most likely to occur when the federal government

Accepted Answer

A)  Runs a surplus and pays off part of the debt.
B)  Has a balanced budget and refinances a portion of the debt that matures.
C)  Runs a deficit and raises taxes to generate more revenue.
D)  Runs a deficit and sells bonds to make up the difference.

Question 8

Uncontrollable government spending includes

Accepted Answer

A)  Interest payments on the national debt.
B)  Spending decisions made in the current year.
C)  Approximately half of the government spending in the United States.
D)  Welfare benefits but not unemployment benefits.

Question 9

Debt accumulation by the U.S.government in the 1980s:

Accepted Answer

A)  Was small compared with earlier periods of history.
B)  Exceeded the debt the country had accumulated over the preceding 200 years.
C)  Was caused by war-related expenditures.
D)  None of the choices are correct.

Question 10

The U.S.private sector holds about _____ percent of outstanding U.S.Treasury bonds.

Accepted Answer

A)  50
B)  17
C)  30
D)  22

Question 11

When the Federal Reserve System buys bonds in the open market,the national debt

Accepted Answer

A)  Must increase.
B)  Must increase as long as the Fed buys only newly issued bonds.
C)  Is not affected.
D)  Will decrease because the Fed is a government agency.

Question 12

To pay back Social Security loans,Congress could do all of the following except

Accepted Answer

A)  Raise future taxes.
B)  Sell fewer U.S.Treasury bonds.
C)  Increase budget deficits.
D)  Reduce spending on non-Social Security programs.

Question 13

A budget surplus is

Accepted Answer

A)  An excess of government spending over government revenues in a given time period.
B)  An excess of government revenues over government expenditures in a given time period.
C)  Used only in time of war.
D)  None of the choices are correct.

Question 14

Federal agencies hold roughly _____ percent of all outstanding Treasury bonds.

Accepted Answer

A)  50
B)  66
C)  30
D)  16

Question 15

The ratio of the debt to GDP is a measure of the burden the debt places on the economy.
The debt to GDP ratio measures the burden of deficit financing over time.

Accepted Answer

A) True 
 B)False

Question 16

If debt-financed less productive government spending crowds out more productive private investment,future generations will bear

Accepted Answer

A)  All of the burden of the debt due to higher taxes.
B)  Zero burden as a result of the debt.
C)  Some of the burden of the debt due to lower productive capacity.
D)  A portion of the burden of the debt relative to the population size.

Question 17

The elements of the federal budget not determined by past legislative or executive commitments are

Accepted Answer

A)  Uncontrollable fiscal spending.
B)  Fiscal restraint items.
C)  Discretionary fiscal spending.
D)  Automatic stabilizers.

Question 18

Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint?

Accepted Answer

A)  More government expenditure and higher taxes.
B)  More government expenditure and lower taxes.
C)  Less government expenditure and higher taxes.
D)  Less government expenditure and lower taxes.

Question 19

Spending for unemployment compensation and welfare benefits increase automatically

Accepted Answer

A)  When the economy expands.
B)  When the economy goes into recession.
C)  When voters make the decision to increase these items.
D)  Only when the fiscal year begins.

Question 20

The use of government taxes and spending to alter economic outcomes is known as

Accepted Answer

A)  Monetary policy.
B)  Fiscal policy.
C)  Incomes policy.
D)  Foreign trade policy.

Exam 12: Deficits and Debt