Question 1

Which of the following statements is correct?

Accepted Answer

A)   Federal deficits were larger in the early 2000s than in the late 2000s.
B)   Deep tax cuts always expand tax revenues and reduce the public debt.
C)   The public debt has usually declined during wartime.
D)   There is a tendency for the public debt to grow during recessions.E) All of the above
F) C) and D)

Question 2

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) All of the above
F) C) and D)

Question 3

The federal government has a large public debt that it finances through borrowing.As a result,real interest rates are higher than otherwise and the volume of private investment spending is lower.This illustrates the:

Accepted Answer

A)   equation-of-exchange effect.
B)   paradox of thrift.
C)   crowding-out effect.
D)   net export effect.E) A) and D)
F) B) and D)

Question 4

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) B) and C)
F) A) and D)

Question 5

Economists refer to a budget deficit that exists when the economy is achieving full employment as a:

Accepted Answer

A)   cyclical deficit.
B)   cyclically adjusted deficit.
C)   natural deficit.
D)   nonrecurring deficit.E) None of the above
F) A) and B)

Question 6

Suppose that the economy is in the midst of a recession.Which of the following policies would most likely end the recession and stimulate output growth?

Accepted Answer

A)   A congressional proposal to incur a federal surplus to be used for the retirement of public debt.
B)   Reductions in agricultural subsidies and veterans' benefits.
C)   Postponement of a highway construction program.
D)   Reductions in federal tax rates on personal and corporate income.E) B) and D)
F) None of the above

Question 7

Demand-pull inflation can be restrained by increasing government spending and reducing taxes.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following historically has not been a significant contributor to the U.S.public debt?

Accepted Answer

A)   War financing.
B)   Tax cuts and expenditure increases in the 1980s.
C)   Recessions.
D)   Demand-pull inflation.E) None of the above
F) B) and C)

Question 9

If the MPC in an economy is .75,government could shift the aggregate demand curve leftward by $60 billion by:

Accepted Answer

A)   reducing government expenditures by $12 billion.
B)   reducing government expenditures by $60 billion.
C)   increasing taxes by $15 billion.
D)   increasing taxes by $20 billion.E) B) and C)
F) A) and B)

Question 10

If the MPS in an economy is .4,government could shift the aggregate demand curve leftward by $50 billion by:

Accepted Answer

A)   reducing government expenditures by $125 billion.
B)   reducing government expenditures by $20 billion.
C)   increasing taxes by $50 billion.
D)   increasing taxes by $250 billion.E) A) and C)
F) A) and D)

Question 11

The actual budget may be in deficit while the cyclically adjusted budget is in surplus.

Accepted Answer

A) True 
 B)False

Question 12

Since actual budget deficits surpassed 10 percent of GDP in 2009:

Accepted Answer

A)   fiscal policy has become contractionary.
B)   the deficits as a percentage of GDP have fallen,but fiscal policy has remained expansionary.
C)   deficits as a percentage of GDP have continued to rise.
D)   deficits as a percentage of GDP have remained constant but risen in dollar amounts.E) B) and C)
F) A) and B)

Question 13

Answer the question using the following budget information for a hypothetical economy.Assume that all budget surpluses are used to pay down the public debt.  Year 1Year 2Year 3Year 4Year 5Year 6GovernmentSpending‾$450500600640680600Tax Revenues‾$425450500620580620 GDP ‾$2,0003,0004,0005,0004,8005,000\begin{array}{c}\begin{array}{lll}\\	ext {Year 1}\	ext {Year 2}\	ext {Year 3}\	ext {Year 4}\	ext {Year 5}\	ext {Year 6}\end{array}\begin{array}{c}	ext {Government}\\underline{	ext {Spending}}\ \$ 450 \500\600\640\680\600\end{array}\begin{array}{c}\\underline{	ext {Tax Revenues}}\\$ 425 \450 \500 \620 \580 \620\end{array}\begin{array}{c}\\underline{	ext { GDP }} \ \$ 2,000 \3,000 \4,000 \5,000 \4,800 \5,000\end{array}\end{array}Year 1Year 2Year 3Year 4Year 5Year 6​GovernmentSpending​$450500600640680600​Tax Revenues​$425450500620580620​ GDP ​$2,0003,0004,0005,0004,8005,000​​ 
 Refer to the data.A budget surplus occurred in year:

Accepted Answer

A)   2.
B)   3.
C)   4.
D)   6. E) All of the above
F) A) and B)

Question 14

In 1960 the ratio of workers to Social Security and Medicare beneficiaries was ______;by 2040 it is projected to be _________.

Accepted Answer

A)   10:1;3:1
B)   3:1;2:1
C)   5:1;2:1
D)   2:1;3:1E) B) and C)
F) A) and B)

Question 15

Answer the question on the basis of the following sequence of events involving fiscal policy: 
(1) The composite index of leading indicators turns downward for three consecutive months,suggesting the possibility of a recession.
(2) Economists reach agreement that the economy is moving into a recession.
(3) A tax cut is proposed in Congress.
(4) The tax cut is passed by Congress and signed by the president.
(5) Consumption spending begins to rise,aggregate demand increases,and the economy begins to recover. Refer to the information.The operational lag of fiscal policy is reflected in event(s) :

Accepted Answer

A)   1 and 2.
B)   2 and 3.
C)   3 and 4.
D)   5.E) A) and B)
F) A) and C)

Question 16

Which of the following is considered a legitimate concern of a large public debt?

Accepted Answer

A)   Bankruptcy of the federal government.
B)   Crowding-out of private investment.
C)   Burdening future generations.
D)   Collapse of the financial system.E) None of the above
F) A) and B)

Question 17

The real burden of an increase in the public debt:

Accepted Answer

A)   may be very small or conceivably zero when the economy is in a severe depression.
B)   will be smaller when full employment exists than when the economy has large quantities of idle resources.
C)   can be shifted to future generations if the debt is internally financed.
D)   can best be measured by the dollar increase in the size of the debt.E) A) and C)
F) C) and D)

Question 18

Permanent tax reductions are more likely to be expansionary than temporary tax reductions.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following would not help to relieve the Social Security and Medicare shortfalls?

Accepted Answer

A)   Extending the Social Security tax to a higher level of earnings.
B)   Restricting immigration of skilled working-age adults.
C)   Increasing the retirement age for collecting Social Security and Medicare benefits.
D)   Reducing Social Security and Medicare benefits for wealthier individuals.E) A) and D)
F) A) and C)

Question 20

The crowding-out effect suggests that:

Accepted Answer

A)   tax increases are paid primarily out of saving and therefore are not an effective fiscal device.
B)   government borrowing to finance the public debt increases the real interest rate and reduces private investment.
C)   it is very difficult to have excessive aggregate spending in a capitalist economy.
D)   consumer and investment spending always vary inversely.E) B) and C)
F) A) and D)

Exam 32: The Balance of Payments, Exchange Rates, and Trade Deficits

The federal government has a large public debt that it finances through borrowing.As a result,real interest rates are higher than otherwise and the volume of private investment spending is lower.This illustrates the:

Correct Answer
verified

Demand-pull inflation can be restrained by increasing government spending and reducing taxes.

Correct Answer
verified

Permanent tax reductions are more likely to be expansionary than temporary tax reductions.

Correct Answer
verified

Since actual budget deficits surpassed 10 percent of GDP in 2009:

Correct Answer
verified

Suppose that the economy is in the midst of a recession.Which of the following policies would most likely end the recession and stimulate output growth?

Correct Answer
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Correct Answer
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Correct Answer
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The real burden of an increase in the public debt:

Correct Answer
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Which of the following is considered a legitimate concern of a large public debt?

Correct Answer
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If the MPC in an economy is .75,government could shift the aggregate demand curve leftward by $60 billion by:

Correct Answer
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Which of the following statements is correct?

Correct Answer
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Which of the following would not help to relieve the Social Security and Medicare shortfalls?

Correct Answer
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If the MPS in an economy is .4,government could shift the aggregate demand curve leftward by $50 billion by:

Correct Answer
verified

The crowding-out effect suggests that:

Correct Answer
verified

Economists refer to a budget deficit that exists when the economy is achieving full employment as a:

Correct Answer
verified

The actual budget may be in deficit while the cyclically adjusted budget is in surplus.

Correct Answer
verified

In 1960 the ratio of workers to Social Security and Medicare beneficiaries was ;by 2040 it is projected to be ___.

Correct Answer
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The U.S.public debt:

Correct Answer
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When current tax revenues exceed current government expenditures and the economy is achieving full employment:

Correct Answer
verified

Which of the following historically has not been a significant contributor to the U.S.public debt?

Correct Answer
verified

Exam 32: The Balance of Payments, Exchange Rates, and Trade Deficits

The federal government has a large public debt that it finances through borrowing.As a result,real interest rates are higher than otherwise and the volume of private investment spending is lower.This illustrates the:

Correct AnswerverifiedShow Answer

Demand-pull inflation can be restrained by increasing government spending and reducing taxes.

Correct AnswerverifiedShow Answer

Permanent tax reductions are more likely to be expansionary than temporary tax reductions.

Correct AnswerverifiedShow Answer

Since actual budget deficits surpassed 10 percent of GDP in 2009:

Correct AnswerverifiedShow Answer

Suppose that the economy is in the midst of a recession.Which of the following policies would most likely end the recession and stimulate output growth?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The real burden of an increase in the public debt:

Correct AnswerverifiedShow Answer

Which of the following is considered a legitimate concern of a large public debt?

Correct AnswerverifiedShow Answer

If the MPC in an economy is .75,government could shift the aggregate demand curve leftward by $60 billion by:

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following would not help to relieve the Social Security and Medicare shortfalls?

Correct AnswerverifiedShow Answer

If the MPS in an economy is .4,government could shift the aggregate demand curve leftward by $50 billion by:

Correct AnswerverifiedShow Answer

The crowding-out effect suggests that:

Correct AnswerverifiedShow Answer

Economists refer to a budget deficit that exists when the economy is achieving full employment as a:

Correct AnswerverifiedShow Answer

The actual budget may be in deficit while the cyclically adjusted budget is in surplus.

Correct AnswerverifiedShow Answer

In 1960 the ratio of workers to Social Security and Medicare beneficiaries was ______;by 2040 it is projected to be _________.

Correct AnswerverifiedShow Answer

The U.S.public debt:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following historically has not been a significant contributor to the U.S.public debt?

Correct AnswerverifiedShow Answer

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In 1960 the ratio of workers to Social Security and Medicare beneficiaries was ;by 2040 it is projected to be ___.

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