Question 1

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion; (2) investment = $50 billion; (3) government purchases = $100 billion;and (4) net export = $20 billion.If the full-employment level of GDP for this economy is $620 billion,then what combination of actions would be most consistent with the goal of achieving price level stability?

Accepted Answer

A)   increase government spending and taxes
B)   decrease government spending and taxes
C)   decrease government spending and increase taxes
D)   increase government spending and decrease taxesE) B) and D)
F) All of the above

Question 2

If a government wants to pursue an expansionary fiscal policy,then a tax cut of a certain size will be more expansionary the:

Accepted Answer

A)   smaller is the economy's MPS.
B)   larger is the economy's MPS.
C)   smaller is the economy's MPC.
D)   larger is the unemployment rate.E) C) and D)
F) B) and C)

Question 3

-Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy,the tax system:

Accepted Answer

A)   is regressive.
B)   is proportional.
C)   is progressive.
D)   may be either proportional or progressive.E) C) and D)
F) All of the above

Question 4

An expansionary fiscal policy can be partially offset by a(n) :

Accepted Answer

A)   increase in aggregate demand.
B)   increase in aggregate supply.
C)   depreciation of the dollar.
D)   decrease in net exports.E) B) and C)
F) A) and B)

Question 5

Critics contend that the crowding-out effect will be minimal when the economy is in a recession.

Accepted Answer

A) True 
 B)False

Question 6

Increased government spending for investments such as highways or harbours financed by increasing the public debt would most likely:

Accepted Answer

A)   crowd out future public investment.
B)   reduce the economy's future productive capacity.
C)   increase the amount of public capital stock in the future.
D)   increase the amount of private capital stock in the future.E) C) and D)
F) None of the above

Question 7

Built-in stabilizers:

Accepted Answer

A)   intensify the business cycle.
B)   reduce the size of the multiplier.
C)   increase the government's deficit during a recession.
D)   are a part of discretionary fiscal policy.E) None of the above
F) B) and D)

Question 8

-Refer to the above graph.If interest rates increased by 2 percentage points,what event would most likely counteract the crowding-out effect?

Accepted Answer

A)   a shift from curve B to curve A
B)   a shift from curve A to curve B
C)   a movement from point 5 to point 2
D)   a movement from point 3 to point 1E) All of the above
F) B) and C)

Question 9

A tax reduction of a specific amount will be more expansionary,the:

Accepted Answer

A)   smaller is the economy's MPC.
B)   larger is the economy's MPC.
C)   smaller is the economy's multiplier.
D)   less the economy's built-in stability.E) A) and C)
F) None of the above

Question 10

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n) :

Accepted Answer

A)   budget lag.
B)   recognition lag.
C)   operational lag.
D)   administrative lag.E) A) and B)
F) B) and D)

Question 11

In Year 1,the actual budget deficit was $200 billion and the cyclically adjusted deficit was $150 billion.In Year 2,the actual budget deficit was $225 billion and the cyclically adjusted deficit was $175 billion.It can be concluded that fiscal policy from Year 1 to Year 2 was:

Accepted Answer

A)   proportional.
B)   inflationary.
C)   contractionary.
D)   expansionaryE) A) and D)
F) A) and C)

Question 12

An effective expansionary fiscal policy will:

Accepted Answer

A)   not change the size of full-employment deficit.
B)   reduce a full-employment deficit.
C)   increase the full-employment deficit.
D)   always result in a balanced budget once full-employment is achieved.E) A) and C)
F) A) and B)

Question 13

The key to assessing the direction of discretionary fiscal policy is to observe changes in the full-employment deficit.

Accepted Answer

A) True 
 B)False

Question 14

The actual budget deficit of the federal government in 1991 was about $30 billion.On the basis of this information it:

Accepted Answer

A)   can be concluded that the economy was faced with serious inflation in 1991.
B)   cannot be determined whether fiscal policy had an expansionary or a contractionary impact in 1991.
C)   can be concluded that fiscal policy was contractionary in 1991.
D)   can be concluded that fiscal policy was expansionary in 1991.E) None of the above
F) B) and C)

Question 15

Assume the economy is in the midst of a severe recession.Which of the following policies would be consistent with discretionary fiscal policy?

Accepted Answer

A)   a Parliamentary proposal to incur a federal surplus to be used for the retirement of public debt
B)   a reduction in agricultural subsidies and veterans' benefits
C)   a postponement of a highway construction program
D)   a reduction in federal tax rates on personal and corporate incomeE) All of the above
F) C) and D)

Question 16

Currently,the general agreement about a proposed fiscal policy is that:

Accepted Answer

A)   it should be evaluated for its potential positive and negative impacts on long-run productivity growth.
B)   only the short -run impact of it on the economy should be evaluated.
C)   the politicians should not be worried about either the short-run nor long-run effects of a fiscal policy.
D)   it should only be used when the economy is experiencing an inflationary and not a recessionary gap.E) None of the above
F) A) and B)

Question 17

If a deficit is financed by issuing new money,the:

Accepted Answer

A)   government is using its accumulated surplus to issue the new money.
B)   government will be competing with private borrowers for funds.
C)   increased demand for funds will drive up the interest rate.
D)   crowding-out of investment can probably be avoided.E) C) and D)
F) A) and B)

Question 18

The crowding-out effect of an expansionary fiscal policy is likely to be fully or partially offset during a recession.

Accepted Answer

A) True 
 B)False

Question 19

Assume the government incurs a budget deficit which is financed by borrowing.As a result,interest rates rise and the volume of private investment spending declines.This illustrates:

Accepted Answer

A)   the equation-of-exchange effect.
B)   the paradox of thrift.
C)   the crowding-out effect.
D)   the money-fund effect.E) B) and D)
F) None of the above

Question 20

The full-employment budget measures what the Federal budget deficit or surplus would be at full employment output with existing tax and spending decisions.

Accepted Answer

A) True 
 B)False

Exam 13: Fiscal Policy, Deficits, Surpluses, and Debt

Assume the economy is in the midst of a severe recession.Which of the following policies would be consistent with discretionary fiscal policy?

Correct Answer
verified

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n) :

Correct Answer
verified

An expansionary fiscal policy can be partially offset by a(n) :

Correct Answer
verified

Critics contend that the crowding-out effect will be minimal when the economy is in a recession.

Correct Answer
verified

Assume the government incurs a budget deficit which is financed by borrowing.As a result,interest rates rise and the volume of private investment spending declines.This illustrates:

Correct Answer
verified

A tax reduction of a specific amount will be more expansionary,the:

Correct Answer
verified

Built-in stabilizers:

Correct Answer
verified

The key to assessing the direction of discretionary fiscal policy is to observe changes in the full-employment deficit.

Correct Answer
verified

-Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy,the tax system:

Correct Answer
verified

An effective expansionary fiscal policy will:

Correct Answer
verified

If a deficit is financed by issuing new money,the:

Correct Answer
verified

Currently,the general agreement about a proposed fiscal policy is that:

Correct Answer
verified

The full-employment budget measures what the Federal budget deficit or surplus would be at full employment output with existing tax and spending decisions.

Correct Answer
verified

If a government wants to pursue an expansionary fiscal policy,then a tax cut of a certain size will be more expansionary the:

Correct Answer
verified

-Refer to the above graph.If interest rates increased by 2 percentage points,what event would most likely counteract the crowding-out effect?

Correct Answer
verified

The crowding-out effect of an expansionary fiscal policy is likely to be fully or partially offset during a recession.

Correct Answer
verified

The actual budget deficit of the federal government in 1991 was about $30 billion.On the basis of this information it:

Correct Answer
verified

In Year 1,the actual budget deficit was $200 billion and the cyclically adjusted deficit was $150 billion.In Year 2,the actual budget deficit was $225 billion and the cyclically adjusted deficit was $175 billion.It can be concluded that fiscal policy from Year 1 to Year 2 was:

Correct Answer
verified

Increased government spending for investments such as highways or harbours financed by increasing the public debt would most likely:

Correct Answer
verified

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, Surpluses, and Debt

Assume the economy is in the midst of a severe recession.Which of the following policies would be consistent with discretionary fiscal policy?

Correct AnswerverifiedShow Answer

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n) :

Correct AnswerverifiedShow Answer

An expansionary fiscal policy can be partially offset by a(n) :

Correct AnswerverifiedShow Answer

Critics contend that the crowding-out effect will be minimal when the economy is in a recession.

Correct AnswerverifiedShow Answer

Assume the government incurs a budget deficit which is financed by borrowing.As a result,interest rates rise and the volume of private investment spending declines.This illustrates:

Correct AnswerverifiedShow Answer

A tax reduction of a specific amount will be more expansionary,the:

Correct AnswerverifiedShow Answer

Built-in stabilizers:

Correct AnswerverifiedShow Answer

The key to assessing the direction of discretionary fiscal policy is to observe changes in the full-employment deficit.

Correct AnswerverifiedShow Answer

-Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy,the tax system:

Correct AnswerverifiedShow Answer

An effective expansionary fiscal policy will:

Correct AnswerverifiedShow Answer

If a deficit is financed by issuing new money,the:

Correct AnswerverifiedShow Answer

Currently,the general agreement about a proposed fiscal policy is that:

Correct AnswerverifiedShow Answer

The full-employment budget measures what the Federal budget deficit or surplus would be at full employment output with existing tax and spending decisions.

Correct AnswerverifiedShow Answer

If a government wants to pursue an expansionary fiscal policy,then a tax cut of a certain size will be more expansionary the:

Correct AnswerverifiedShow Answer

-Refer to the above graph.If interest rates increased by 2 percentage points,what event would most likely counteract the crowding-out effect?

Correct AnswerverifiedShow Answer

The crowding-out effect of an expansionary fiscal policy is likely to be fully or partially offset during a recession.

Correct AnswerverifiedShow Answer

The actual budget deficit of the federal government in 1991 was about $30 billion.On the basis of this information it:

Correct AnswerverifiedShow Answer

In Year 1,the actual budget deficit was $200 billion and the cyclically adjusted deficit was $150 billion.In Year 2,the actual budget deficit was $225 billion and the cyclically adjusted deficit was $175 billion.It can be concluded that fiscal policy from Year 1 to Year 2 was:

Correct AnswerverifiedShow Answer

Increased government spending for investments such as highways or harbours financed by increasing the public debt would most likely:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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