Question 1

Which combination of ﬁscal policy actions would most likely offset each other?

Accepted Answer

A)   increase both taxes and government spending
B)   decrease taxes and increase government spending
C)   increase taxes but make no change in government spending
D)   decrease government spending but make no change in taxesE) None of the above
F) A) and B)

Question 2

Refer to the diagram, where T is tax revenues and G is government expenditures. All ﬁgures are in billions of dollars. If the full-employment and actual GDP are each $400 billion, government can balance
Its cyclically adjusted budget by

Accepted Answer

A)   increasing T by $40 billion.
B)   reducing G by $20 billion.
C)   reducing T by $20 billion.
D)   increasing T by $10 billion and reducing G by $20 billion.E) B) and D)
F) A) and C)

Question 3

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. If GDP is $400,

Accepted Answer

A)   there will be a budget deﬁcit.
B)   there will be a budget surplus.
C)   the budget will be balanced.
D)   the macroeconomy will necessarily be in equilibrium.E) C) and D)
F) A) and B)

Question 4

If taxation becomes more progressive, the built-in stability in the economy will decrease.

Accepted Answer

A) True 
 B)False

Question 5

Increases in the federal budget deﬁcit from 2007 to 2009 were caused

Accepted Answer

A)   exclusively by the loss of tax revenue due to recession.
B)   exclusively by expansionary ﬁscal policy, as shown through growth in the cyclically adjusted deﬁcit.
C)   primarily by a combination of recession and expansionary ﬁscal policy.
D)   primarily by increased outlays to a rapidly growing number of Social Security recipients.E) C) and D)
F) B) and D)

Question 6

The operational lag of ﬁscal policy refers to the time that elapses between the beginning of a recession
or inﬂation and the certain awareness that it is actually happening.

Accepted Answer

A) True 
 B)False

Question 7

If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by

Accepted Answer

A)   increasing government spending by $25 billion.
B)   increasing government spending by $80 billion.
C)   decreasing taxes by $25 billion.
D)   decreasing taxes by $100 billion.E) C) and D)
F) B) and C)

Question 8

Refer to the diagram. Discretionary ?scal policy designed to expand GDP is illustrated by

Accepted Answer

A)   the shift of curve  T1 to T2T _ { 1 } 	ext { to } T _ { 2 }T1​ to T2​ 
B)   the shift of curve  T2 to T1T _ { 2 } 	ext { to } T _ { 1 }T2​ to T1​ 
C)   a movement from a to c along curve  T2T _ { 2 }T2​ 
D)   a movement from d to b along curve  T1.T _ { 1 } .T1​.E) A) and C)
F) A) and B)

Question 9

The cyclically adjusted budget deﬁcit for the United States

Accepted Answer

A)   rose to −7.6 percent of potential GDP in 2009 but has since declined.
B)   was zero in 2009, but the cyclical deﬁcit created by the recession was −7.6 percent of potential GDP.
C)   changed to a surplus in 2009.
D)   rose to −10.1 percent of potential GDP in 2009 but has since declined.E) B) and D)
F) C) and D)

Question 10

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that
ﬁscal policy has turned more contractionary.

Accepted Answer

A) True 
 B)False

Question 11

The American Recovery and Reinvestment Act of 2009

Accepted Answer

A)   created a $700 billion rescue package for ﬁnancial institutions.
B)   cut taxes by $152 billion, distributed primarily as rebate checks to taxpayers.
C)   implemented a $787 billion package of tax cuts and government expenditure increases.
D)   substantially lowered interest rates in an attempt to stimulate investment spending.E) B) and C)
F) A) and C)

Question 12

More than half of the U.S. public debt is owed to Americans.

Accepted Answer

A) True 
 B)False

Question 13

Accepted Answer

A)   a positive GDP gap.
B)   a negative GDP gap.
C)   inﬂation.
D)   an adverse supply shock.E) A) and C)
F) All of the above

Question 14

The Social Security program is a retirement system where payments to retirees come from their
previous contributions.

Accepted Answer

A) True 
 B)False

Question 15

As measured by the cyclically adjusted budget, the U.S. government engaged in a contractionary ﬁscal
policy in 2005 and 2006.

Accepted Answer

A) True 
 B)False

Question 16

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) All of the above
F) A) and B)

Question 17

Suppose the federal government had budget deﬁcits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its
Budget surpluses to pay down the public debt. At the end of these four years, the federal government's
Public debt would have

Accepted Answer

A)   increased by $90 billion.
B)   increased by $20 billion.
C)   decreased by $70 billion.
D)   decreased by $20 billion.E) C) and D)
F) A) and D)

Question 18

Gross Domestic Product (GDP)   Consumption (C)  $0$40100120200200300280400360\begin{array} { | c | c | } \hline 	ext { Gross Domestic Product (GDP)  } & 	ext { Consumption (C)  } \\hline \$ 0 & \$ 40 \\hline 100 & 120 \\hline 200 & 200 \\hline 300 & 280 \\hline 400 & 360 \\hline\end{array} Gross Domestic Product (GDP)  $0100200300400​ Consumption (C)  $40120200280360​​  The accompanying table is the before-tax consumption schedule for a closed economy. If a lump-sum tax (the same tax amount at each level of GDP)  of $40 is imposed in this economy, the marginal
Propensity to consume is

Accepted Answer

A)   0.8 before taxes and 0.6 after taxes.
B)   0.8 both before and after taxes.
C)   0.6 before taxes and 0.8 after taxes.
D)   0.8 before taxes and 0.4 after taxes. E) B) and C)
F) A) and B)

Question 19

Discretionary ﬁscal policy will likely cause budget

Accepted Answer

A)   surpluses during recessions and deﬁcits during periods of demand-pull inﬂation.
B)   deﬁcits during recessions and surpluses during periods of demand-pull inﬂation.
C)   surpluses during both recessions and periods of demand-pull inﬂation.
D)   deﬁcits during both recessions and periods of demand-pull inﬂation.E) A) and D)
F) B) and D)

Question 20

In 2018, U.S. individuals and private banks (and other ﬁnancial institutions)  held about what percentage of U.S. federal debt?

Accepted Answer

A)   33 percent
B)   50 percent
C)   17 percent
D)   75 percentE) A) and B)
F) B) and D)

Exam 13: Fiscal Policy, Deficits, and Debt

Correct Answer
verified

If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by

Correct Answer
verified

If taxation becomes more progressive, the built-in stability in the economy will decrease.

Correct Answer
verified

Correct Answer
verified

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. If GDP is $400,

Correct Answer
verified

In 2018, U.S. individuals and private banks (and other ﬁnancial institutions) held about what percentage of U.S. federal debt?

Correct Answer
verified

Increases in the federal budget deﬁcit from 2007 to 2009 were caused

Correct Answer
verified

Refer to the diagram, where T is tax revenues and G is government expenditures. All ﬁgures are in billions of dollars. If the full-employment and actual GDP are each $400 billion, government can balance Its cyclically adjusted budget by

Correct Answer
verified

As measured by the cyclically adjusted budget, the U.S. government engaged in a contractionary ﬁscal policy in 2005 and 2006.

Correct Answer
verified

The crowding-out effect suggests that

Correct Answer
verified

The cyclically adjusted budget deﬁcit for the United States

Correct Answer
verified

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that ﬁscal policy has turned more contractionary.

Correct Answer
verified

Which combination of ﬁscal policy actions would most likely offset each other?

Correct Answer
verified

Correct Answer
verified

Discretionary ﬁscal policy will likely cause budget

Correct Answer
verified

The operational lag of ﬁscal policy refers to the time that elapses between the beginning of a recession or inﬂation and the certain awareness that it is actually happening.

Correct Answer
verified

The Social Security program is a retirement system where payments to retirees come from their previous contributions.

Correct Answer
verified

The American Recovery and Reinvestment Act of 2009

Correct Answer
verified

Correct Answer
verified

More than half of the U.S. public debt is owed to Americans.

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, and Debt

Refer to the diagram. Discretionary ?scal policy designed to expand GDP is illustrated by

Correct AnswerverifiedShow Answer

If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by

Correct AnswerverifiedShow Answer

If taxation becomes more progressive, the built-in stability in the economy will decrease.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the diagram, in which T is tax revenues and G is government expenditures. All ﬁgures are in billions. If GDP is $400,

Correct AnswerverifiedShow Answer

In 2018, U.S. individuals and private banks (and other ﬁnancial institutions) held about what percentage of U.S. federal debt?

Correct AnswerverifiedShow Answer

Increases in the federal budget deﬁcit from 2007 to 2009 were caused

Correct AnswerverifiedShow Answer

Refer to the diagram, where T is tax revenues and G is government expenditures. All ﬁgures are in billions of dollars. If the full-employment and actual GDP are each $400 billion, government can balance Its cyclically adjusted budget by

Correct AnswerverifiedShow Answer

As measured by the cyclically adjusted budget, the U.S. government engaged in a contractionary ﬁscal policy in 2005 and 2006.

Correct AnswerverifiedShow Answer

The crowding-out effect suggests that

Correct AnswerverifiedShow Answer

The cyclically adjusted budget deﬁcit for the United States

Correct AnswerverifiedShow Answer

If the cyclically adjusted budget deﬁcit goes from 2 percent to 1 percent of GDP, then it indicates that ﬁscal policy has turned more contractionary.

Correct AnswerverifiedShow Answer

Which combination of ﬁscal policy actions would most likely offset each other?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Discretionary ﬁscal policy will likely cause budget

Correct AnswerverifiedShow Answer

The operational lag of ﬁscal policy refers to the time that elapses between the beginning of a recession or inﬂation and the certain awareness that it is actually happening.

Correct AnswerverifiedShow Answer

The Social Security program is a retirement system where payments to retirees come from their previous contributions.

Correct AnswerverifiedShow Answer

The American Recovery and Reinvestment Act of 2009

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

More than half of the U.S. public debt is owed to Americans.

Correct AnswerverifiedShow Answer

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