Question 1

The following is an investment schedule. Investment spending is in billions of dollars.  Refer to the data in the table above. When the government runs a budget deficit and issues more Treasury securities, crowding out would occur if:

Accepted Answer

A)   The interest rate is at 0%
B)   The interest rate rises
C)   The interest rate falls
D)   The interest rate stays high at 8%E) All of the above
F) A) and B)

Question 2

There is general agreement among economists that a proposed fiscal policy should be evaluated for its:

Accepted Answer

A)   Contribution to the purpose of "fine-tuning" the economy
B)   Contribution to the growth of exports and imports in the economy
C)   Potential positive and negative effects on long-run productivity growth
D)   Potential positive and negative effects on short-run business indebtednessE) A) and D)
F) A) and B)

Question 3

1 to AD2? A)  An increase in taxes and an increase in government spending B)  A decrease in taxes and an increase in government spending C)  An increase in taxes and no change in government spending D)  A decrease in taxes and a decrease in government spending" class="answers-bank-image d-inline" rel="preload" > Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2?

Accepted Answer

A)   An increase in taxes and an increase in government spending
B)   A decrease in taxes and an increase in government spending
C)   An increase in taxes and no change in government spending
D)   A decrease in taxes and a decrease in government spendingE) None of the above
F) B) and C)

Question 4

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the:

Accepted Answer

A)   Crowding-out lag
B)   Recognition lag
C)   Operational lag
D)   Administrative lagE) A) and D)
F) A) and C)

Question 5

Medicare and Social Security are similar in the following respects, except:

Accepted Answer

A)   They are both "pay-as-you-go" plans
B)   Their trust funds are both projected to be depleted within the next 30 years
C)   Contributions are collected from both employers and employees
D)   They are both intended to benefit older current workersE) None of the above
F) B) and D)

Question 6

Contractionary fiscal policy would tend to make a budget deficit become:

Accepted Answer

A)   Bigger
B)   Smaller
C)   A trade deficit
D)   A trade surplusE) All of the above
F) A) and D)

Question 7

You are given the following information about aggregate demand at the existing price level for an economy: (1)  consumption = $400 billion; (2)  investment = $40 billion; (3)  government purchases = $90 billion; and (4)  net export = $25 billion. If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with closing the GDP-gap here?

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 C)
F) A) and B)

Question 8

If the cyclically-adjusted budget shows a deficit zero and the actual budget shows a deficit of about $150 billion, it can be concluded that there is:

Accepted Answer

A)   Built-in stability
B)   A cyclical deficit
C)   An expansionary fiscal policy
D)   A contractionary fiscal policyE) B) and C)
F) A) and D)

Question 9

If the economy is to have significant built-in stability, then when real GDP increases, the tax revenues should:

Accepted Answer

A)   Fall proportionately more than the change in GDP
B)   Fall proportionately less than the change in GDP
C)   Rise proportionately more than the change in GDP
D)   Rise proportionately less than the change in GDPE) A) and D)
F) B) and C)

Question 10

Refer to the above graph. The economy is initially at point 1. Which of the following events would cause a shift that would help offset the crowding-out effect? An increase in:

Accepted Answer

A)   Interest rates caused by a change in Federal Reserve policy
B)   Profit expectations resulting from an increase in government spending
C)   Business taxes levied by government to pay for new government programs
D)   The degree of excess capacity in business stemming from a recessionE) B) and C)
F) A) and B)

Question 11

Most economists believe that fiscal policy is:

Accepted Answer

A)   Better than monetary policy for "fine-tuning" the economy
B)   Better than monetary policy for month-to-month stabilization
C)   Not as good as monetary policy for month-to-month stabilization
D)   Not very good at pushing the economy in a particular directionE) B) and C)
F) C) and D)

Question 12

As of 2012, most of the U.S. Federal debt was owed to:

Accepted Answer

A)   Americans
B)   Foreign governments
C)   The Chinese people
D)   The Japanese peopleE) C) and D)
F) B) and D)

Question 13

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

Accepted Answer

A)   Economy's MPS is small
B)   Economy's MPS is large
C)   Economy's MPC is small
D)   Unemployment rate is lowE) B) and C)
F) A) and C)

Question 14

The crowding-out effect works through interest rates and it tends to:

Accepted Answer

A)   Increase the effectiveness of a tax increase
B)   Decrease the effectiveness of a tax increase
C)   Decrease the effectiveness of an increase in government spending
D)   Increase the effectiveness of an increase in government spendingE) C) and D)
F) All of the above

Question 15

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

Accepted Answer

A)   Increase 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) B) and D)
F) A) and D)

Question 16

The key to assessing whether fiscal policy is expansionary or not is to observe the change in the cyclically-adjusted budget balance.

Accepted Answer

A) True 
 B)False

Question 17

The economic burden of World War II for the United States was primarily:

Accepted Answer

A)   Shifted to future generations by bond financing
B)   Borne by the persons who lived during the war period
C)   Shifted to foreign nations who were defeated during the war
D)   Borne by the industries which produced military products during the warE) All of the above
F) A) and B)

Question 18

Crowding out is a decrease in private investment caused by:

Accepted Answer

A)   Increased taxation by the government
B)   Increased borrowing by the government
C)   Increased consumer spending by households
D)   Increased exports to buyers in other nationsE) All of the above
F) B) and D)

Question 19

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 became more:

Accepted Answer

A)   Proportional
B)   Progressive
C)   Contractionary
D)   ExpansionaryE) C) and D)
F) None of the above

Question 20

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Accepted Answer

A)   Fiscal policy
B)   Incomes policy
C)   Monetary policy
D)   Employment policyE) A) and B)
F) A) and C)

Exam 13: Fiscal Policy, Deficits, and Debt

The following is an investment schedule. Investment spending is in billions of dollars. Refer to the data in the table above. When the government runs a budget deficit and issues more Treasury securities, crowding out would occur if:

Correct Answer
verified

Refer to the above graph. The economy is initially at point 1. Which of the following events would cause a shift that would help offset the crowding-out effect? An increase in:

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 when the:

Correct Answer
verified

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

Correct Answer
verified

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Correct Answer
verified

If the cyclically-adjusted budget shows a deficit zero and the actual budget shows a deficit of about $150 billion, it can be concluded that there is:

Correct Answer
verified

The key to assessing whether fiscal policy is expansionary or not is to observe the change in the cyclically-adjusted budget balance.

Correct Answer
verified

Medicare and Social Security are similar in the following respects, except:

Correct Answer
verified

Most economists believe that fiscal policy is:

Correct Answer
verified

The economic burden of World War II for the United States was primarily:

Correct Answer
verified

As of 2012, most of the U.S. Federal debt was owed to:

Correct Answer
verified

If the economy is to have significant built-in stability, then when real GDP increases, the tax revenues should:

Correct Answer
verified

Contractionary fiscal policy would tend to make a budget deficit become:

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 became more:

Correct Answer
verified

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the:

Correct Answer
verified

Refer to the above graph. What combination would most likely cause a shift from AD₁ to AD₂?

Correct Answer
verified

The crowding-out effect works through interest rates and it tends to:

Correct Answer
verified

There is general agreement among economists that a proposed fiscal policy should be evaluated for its:

Correct Answer
verified

Crowding out is a decrease in private investment caused by:

Correct Answer
verified

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, and Debt

The following is an investment schedule. Investment spending is in billions of dollars. Refer to the data in the table above. When the government runs a budget deficit and issues more Treasury securities, crowding out would occur if:

Correct AnswerverifiedShow Answer

Refer to the above graph. The economy is initially at point 1. Which of the following events would cause a shift that would help offset the crowding-out effect? An increase in:

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 when the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Correct AnswerverifiedShow Answer

If the cyclically-adjusted budget shows a deficit zero and the actual budget shows a deficit of about $150 billion, it can be concluded that there is:

Correct AnswerverifiedShow Answer

The key to assessing whether fiscal policy is expansionary or not is to observe the change in the cyclically-adjusted budget balance.

Correct AnswerverifiedShow Answer

Medicare and Social Security are similar in the following respects, except:

Correct AnswerverifiedShow Answer

Most economists believe that fiscal policy is:

Correct AnswerverifiedShow Answer

The economic burden of World War II for the United States was primarily:

Correct AnswerverifiedShow Answer

As of 2012, most of the U.S. Federal debt was owed to:

Correct AnswerverifiedShow Answer

If the economy is to have significant built-in stability, then when real GDP increases, the tax revenues should:

Correct AnswerverifiedShow Answer

Contractionary fiscal policy would tend to make a budget deficit become:

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 became more:

Correct AnswerverifiedShow Answer

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the:

Correct AnswerverifiedShow Answer

Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2?

Correct AnswerverifiedShow Answer

The crowding-out effect works through interest rates and it tends to:

Correct AnswerverifiedShow Answer

There is general agreement among economists that a proposed fiscal policy should be evaluated for its:

Correct AnswerverifiedShow Answer

Crowding out is a decrease in private investment caused by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Refer to the above graph. What combination would most likely cause a shift from AD₁ to AD₂?

Correct Answer
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