Question 1

Which of the following is an appropriate fiscal policy prescription for the government to follow?&#10;A)Deficit reduction during a recession.&#10;B)Deficit reduction when there is excess AD.&#10;C)Deficit expansion in an inflationary gap.&#10;D)Deficit reduction during a war.&#10;

Accepted Answer

Deficit reduction when there is excess aggregate demand (AD) is appropriate because it can help cool down the economy and prevent inflation.

Question 2

The fiscal year&#10;A)Is the 12-month period used for federal government accounting purposes.&#10;B)Begins in January for the federal government.&#10;C)Is the period during which the government must balance the budget.&#10;D)None of the choices are correct.&#10;

Accepted Answer

The fiscal year is the 12-month period used for federal government accounting purposes, which runs from October 1 to September 30. This is different from the calendar year, which begins on January 1. The government does not have to balance the budget during the fiscal year, although it is required to do so over the long term.

Question 3

Which of the following represents the use of fiscal policy to achieve a fiscal stimulus?&#10;A)Greater government expenditure or lower taxes.&#10;B)Greater government expenditure or higher taxes.&#10;C)Lower government expenditure or lower taxes.&#10;D)Lower government expenditure or higher taxes.&#10;

Accepted Answer

Fiscal policy can be used to stimulate an economy by either increasing government expenditure or lowering taxes. These actions provide households and businesses with more disposable income, leading to increased spending and economic growth. Therefore, A) greater government expenditure or lower taxes represent the use of fiscal policy to achieve a fiscal stimulus.

Question 4

Deficit spending results whenever the government&#10;A)Issues bonds to finance the debt.&#10;B)Finances current expenditures that exceed current tax revenues.&#10;C)Refinances the debt.&#10;D)None of the choices are correct.&#10;

Accepted Answer

Deficit spending occurs when the government spends more money than it receives in tax revenue. To cover the shortfall, the government must either borrow money (such as by issuing bonds) or print money, both of which can lead to inflation and other economic problems. Therefore, option B is the correct choice.

Question 5

When there is excess aggregate demand,the appropriate fiscal policy would be for the government to&#10;A)Make budget surpluses smaller.&#10;B)Make budget surpluses larger.&#10;C)Make budget deficits larger.&#10;D)Increase the public debt.&#10;

Accepted Answer

The answer of When there is excess aggregate demand,the appropriate...

Question 6

Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint?&#10;A)More government expenditure and higher taxes.&#10;B)More government expenditure and lower taxes.&#10;C)Less government expenditure and higher taxes.&#10;D)Less government expenditure and lower taxes.&#10;

Accepted Answer

To reduce the budget deficit, the best policy option is to decrease government expenditure and increase taxes. This offers greater fiscal restraint by reducing overall government spending and increasing revenue. Option A (more government expenditure and higher taxes) would increase the deficit since government spending would increase. Option B (more government expenditure and lower taxes) would also increase the deficit as the government is increasing its spending while reducing its revenue. Option D (less government expenditure and lower taxes) may reduce the deficit, but it would only be to a limited extent since revenue would also decrease. Therefore, option C is the best choice.

Question 7

With greater deficit spending,ceteris paribus,&#10;A)Aggregate spending should fall.&#10;B)Any inflationary gap will become larger.&#10;C)There are greater leakages.&#10;D)There is inadequate information to tell what happens to aggregate spending.&#10;

Accepted Answer

Greater deficit spending increases aggregate demand, which can widen an inflationary gap if the economy is already operating at or near full capacity.

Question 8

In order to reduce the U.S.debt,&#10;A)The government must use deficit spending.&#10;B)The government should spend less than it collects in tax revenues.&#10;C)There will be a transfer of revenue from bondholders to taxpayers.&#10;D)Foreign governments must lend more money to the U.S. government.&#10;

Accepted Answer

The best way to reduce U.S. debt is for the government to spend less than it collects in tax revenues. This means reducing government spending, increasing tax revenue, or a combination of both. Deficit spending (choice A) means the government is spending more money than it takes in, which leads to an increase in the national debt. A transfer of revenue from bondholders to taxpayers (choice C) is not a solution to reducing the debt, as it does not address the underlying issue of government spending. Relying on foreign governments to lend more money (choice D) also increases the debt and makes the U.S. economy more vulnerable to external factors.

Question 9

If full-employment output exceeds equilibrium output,greater deficit spending will result in a&#10;A)Smaller recessionary gap.&#10;B)Smaller inflationary gap.&#10;C)Larger recessionary gap.&#10;D)None of the choices are correct.&#10;

Accepted Answer

Greater deficit spending increases aggregate demand, which can help close the recessionary gap by moving equilibrium output closer to full-employment output.

Question 10

A budget surplus is&#10;A)An excess of government spending over government revenues in a given time period.&#10;B)An excess of government revenues over government expenditures in a given time period.&#10;C)Used only in time of war.&#10;D)None of the choices are correct.&#10;

Accepted Answer

A budget surplus is the amount by which government revenue exceeds government spending in a given time period. This means that the government has extra funds that can be used for various purposes such as paying off debt or investing in projects that benefit the economy. Option A is a budget deficit, which is the opposite of a surplus. Option C is not true because budget surpluses can occur in times other than war. Option D is not correct as option B is the correct answer.

Question 11

If full-employment income and equilibrium income are equal for a country,then a tax cut will result in&#10;A)Excess AD.&#10;B)Output exceeding desired expenditure.&#10;C)Leakages exceeding injections.&#10;D)Undesired inventory accumulation.&#10;

Accepted Answer

The answer of If full-employment income and equilibrium income are...

Question 12

Discretionary expenditures account for approximately&#10;A)One-fifth of the federal budget.&#10;B)One-half of the federal budget.&#10;C)One-third of the federal budget.&#10;D)Three-fourths of the federal budget.&#10;

Accepted Answer

The answer of Discretionary expenditures account for approximately&#10;A)One-fifth of the...

Question 13

If the economy is in a recession,&#10;A)It is operating inside the production possibilities curve,and the opportunity cost of deficit spending is zero.&#10;B)Deficit spending will not increase the size of the debt because interest rates will be falling.&#10;C)The economy suffers from structural unemployment,which can be alleviated by debt refinancing.&#10;D)Larger deficits will decrease the national debt.&#10;

Accepted Answer

The answer of If the economy is in a recession,&#10;A)It...

Question 14

Much of each year's federal budget is considered &#34;uncontrollable&#34; because&#10;A)It must be spent for purchases,as opposed to transfer payments.&#10;B)Most of the current revenues and expenditures are the result of decisions made in prior years.&#10;C)It is determined by decision makers who do not have the power to change spending and taxes.&#10;D)None of the choices are correct.&#10;

Accepted Answer

The answer of Much of each year's federal budget is...

Question 15

Which of the following is an argument against balancing the federal budget?&#10;A)The federal government interferes with the economy too much.&#10;B)An increase in government spending and taxes by the same amount does not affect income.&#10;C)Doing so may prevent the government from pulling the economy out of recession.&#10;D)None of the choices are correct.&#10;

Accepted Answer

The answer of Which of the following is an argument...

Question 16

Uncontrollable government spending includes&#10;A)Interest payments on the national debt.&#10;B)Spending decisions made in the current year.&#10;C)Approximately half of the government spending in the United States.&#10;D)Welfare benefits but not unemployment benefits.&#10;

Accepted Answer

The answer of Uncontrollable government spending includes&#10;A)Interest payments on the...

Question 17

In order to maintain a balanced budget every year,during a recession the government would have to&#10;A)Decrease the money supply.&#10;B)Increase the money supply.&#10;C)Decrease spending or increase taxes or both.&#10;D)Increase spending or decrease taxes or both.&#10;

Accepted Answer

The answer of In order to maintain a balanced budget...

Question 18

Which of the following is true about the U.S.federal government budget for the year 1998?&#10;A)The U.S.Constitution was amended to require a balanced federal budget.&#10;B)The federal budget deficit was the largest in history.&#10;C)Federal government receipts were greater than federal government spending for the first time in more than 25 years.&#10;D)Federal government outlays were greater than federal government receipts for the first time in more than 25 years.&#10;

Accepted Answer

The answer of Which of the following is true about...

Question 19

The elements of the federal budget not determined by past legislative or executive commitments are&#10;A)Uncontrollable fiscal spending.&#10;B)Fiscal restraint items.&#10;C)Discretionary fiscal spending.&#10;D)Automatic stabilizers.&#10;

Accepted Answer

The answer of The elements of the federal budget not...

Question 20

The use of government taxes and spending to alter economic outcomes is known as&#10;A)Monetary policy.&#10;B)Fiscal policy.&#10;C)Incomes policy.&#10;D)Foreign trade policy.&#10;

Accepted Answer

The answer of The use of government taxes and spending...

Question 21

A decrease in private sector borrowing and spending caused by increased government borrowing is&#10;A)Crowding in.&#10;B)Crowding out.&#10;C)Fiscal stimulus.&#10;D)The GDP gap.&#10;

Accepted Answer

The answer of A decrease in private sector borrowing and...

Question 22

The structural deficit represents&#10;A)Federal revenues minus federal expenditures at full employment under current fiscal policy.&#10;B)Federal revenues minus expenditures under current fiscal policy at current output.&#10;C)A measure of the size of recessionary or inflationary gaps.&#10;D)The difference between expenditures at full employment and expenditures at cyclical unemployment.&#10;

Accepted Answer

The answer of The structural deficit represents&#10;A)Federal revenues minus federal...

Question 23

For the convenience of analyzing the part of the deficit that is sensitive to fiscal policy,the actual deficit is divided into which of the following components?&#10;A)Automatic stabilizers and autonomous consumption.&#10;B)C,I,G,X,and M.&#10;C)Structural and cyclical deficits.&#10;D)Frictional and seasonal deficits.&#10;

Accepted Answer

The answer of For the convenience of analyzing the part...

Question 24

Automatic stabilizers&#10;A)Are included in discretionary fiscal spending.&#10;B)Cause spending to decrease during a recession.&#10;C)Help to moderate the extremes of the business cycle.&#10;D)Are zero at full employment.&#10;

Accepted Answer

The answer of Automatic stabilizers&#10;A)Are included in discretionary fiscal spending.&#10;B)Cause...

Question 25

An increase in unemployment,ceteris paribus,&#10;A)Leads to decreased government expenditures.&#10;B)Leads to increased government revenues.&#10;C)Reduces a budget surplus.&#10;D)Reduces a budget deficit.&#10;

Accepted Answer

The answer of An increase in unemployment,ceteris paribus,&#10;A)Leads to decreased...

Question 26

Which of the following results from a change in the business cycle,ceteris paribus?&#10;A)Frictional unemployment.&#10;B)Cyclical unemployment.&#10;C)Structural unemployment.&#10;D)Structural deficit.&#10;

Accepted Answer

The answer of Which of the following results from a...

Question 27

The largest percentage of U.S.national debt to GDP occurred during&#10;A)The Civil War.&#10;B)World War I.&#10;C)World War II.&#10;D)The Great Depression.&#10;

Accepted Answer

The answer of The largest percentage of U.S.national debt to...

Question 28

In contrast to the structural deficit,the cyclical deficit reflects&#10;A)Fluctuations in economic activity.&#10;B)Fiscal policy decisions.&#10;C)Changes in discretionary fiscal policy.&#10;D)Changes in the &#34;full-employment&#34; deficit.&#10;

Accepted Answer

The answer of In contrast to the structural deficit,the cyclical...

Question 29

Which of the following is an automatic stabilizer that reduces tax receipts during a recession?&#10;A)Welfare benefits.&#10;B)Medicaid.&#10;C)Corporate and individual income taxes.&#10;D)Indexed retirement and Social Security benefits.&#10;

Accepted Answer

The answer of Which of the following is an automatic...

Question 30

A progressive income tax system is particularly effective as an automatic stabilizer because&#10;A)It reduces demand when income falls.&#10;B)In a booming economy,taxpayers move into higher tax brackets,which restrains their spending.&#10;C)During a recession,it causes the budget deficit to fall.&#10;D)It falls more heavily on taxpayers with high MPCs, which stimulates aggregate demand.&#10;

Accepted Answer

The answer of A progressive income tax system is particularly...

Question 31

Spending for unemployment compensation and welfare benefits increase automatically&#10;A)When the economy expands.&#10;B)When the economy goes into recession.&#10;C)When voters make the decision to increase these items.&#10;D)Only when the fiscal year begins.&#10;

Accepted Answer

The answer of Spending for unemployment compensation and welfare benefits...

Question 32

Automatic stabilizers tend to stabilize the level of economic activity because they&#10;A)Are changed quickly by Congress.&#10;B)Increase the size of the multiplier.&#10;C)Increase spending during recessions and reduce spending during inflationary periods.&#10;D)Control the rate of change in prices.&#10;

Accepted Answer

The answer of Automatic stabilizers tend to stabilize the level...

Question 33

If the cyclical deficit shrank by $60 billion while the structural deficit increased by $35 billion,the total deficit&#10;A)Fell by $25 billion.&#10;B)Grew by $25 billion.&#10;C)Grew by $95 billion.&#10;D)Fell by $60 billion.&#10;

Accepted Answer

The answer of If the cyclical deficit shrank by $60...

Question 34

Fiscal restraint is&#10;A)Tax hikes and/or spending cuts intended to reduce aggregate demand.&#10;B)Changes in taxes and spending intended to increase aggregate supply.&#10;C)Tax cuts or spending increases meant to reduce aggregate demand.&#10;D)Not possible because Congress continues to spend too much money.&#10;

Accepted Answer

The answer of Fiscal restraint is&#10;A)Tax hikes and/or spending cuts...

Question 35

Which of the following is most likely to increase a federal budget surplus?&#10;A)A higher inflation rate and a higher unemployment rate.&#10;B)A higher inflation rate and a lower unemployment rate.&#10;C)A lower inflation rate and a higher unemployment rate.&#10;D)A lower inflation rate and a lower unemployment rate.&#10;

Accepted Answer

The answer of Which of the following is most likely...

Question 36

If the budget deficit for each year is held to a constant nominal value during constant inflationary times,then the inflation-corrected or real value of the total debt would&#10;A)Rise at a decreasing rate.&#10;B)Rise at a constant rate.&#10;C)Begin to fall,but then continually rise.&#10;D)Initially rise but eventually would become negative.&#10;

Accepted Answer

The answer of If the budget deficit for each year...

Question 37

Which of the following is most likely to reduce a federal budget surplus?&#10;A)A booming economy with rising inflation rates.&#10;B)A recession.&#10;C)Higher inflation and higher unemployment rates.&#10;D)Lower inflation and lower unemployment rates.&#10;

Accepted Answer

The answer of Which of the following is most likely...

Question 38

If the total budget deficit is $200 billion and the deficit at full employment is $120 billion,then the&#10;A)Cyclical deficit is $120 billion.&#10;B)Cyclical deficit is $80 billion.&#10;C)Structural deficit is $320 billion.&#10;D)Structural deficit is $80 billion.&#10;

Accepted Answer

The answer of If the total budget deficit is $200...

Question 39

Suppose the economy is at a full-employment GDP of $1 trillion and the tax revenue received by the federal government is always one-fifth of GDP.If planned government expenditure is $300 billion,the structural

A)Deficit is zero.
B)Deficit is $100 billion.
C)Surplus is $100 billion.
D)Deficit is $500 billion.

Accepted Answer

The answer of Suppose the economy is at a full-employment...

Question 40

All of the following contribute to greater deficits when unemployment rises and reduce the deficit during an inflationary gap except for&#10;A)U.S.exports.&#10;B)Welfare benefits.&#10;C)Progressive personal income taxes.&#10;D)Unemployment insurance benefits.&#10;

Accepted Answer

The answer of All of the following contribute to greater...

Question 41

The debt would cease to grow if&#10;A)The federal government balanced its budget.&#10;B)Federal expenditures were greater than federal receipts.&#10;C)Interest rates fell.&#10;D)None of the choices are correct.&#10;

Accepted Answer

The answer of The debt would cease to grow if&#10;A)The...

Question 42

If there was a federal budget surplus and the government decided to either increase spending or decrease taxes,&#10;A)The budget surplus would get smaller.&#10;B)The budget surplus would get larger.&#10;C)The budget surplus would remain unchanged.&#10;D)None of the choices are correct.&#10;

Accepted Answer

The answer of If there was a federal budget surplus...

Question 43

The national debt is&#10;A)The amount by which tax revenues exceed government spending for a given year.&#10;B)The accumulation of all annual deficit and surplus flows.&#10;C)The amount by which government spending exceeds tax revenues for a given year.&#10;D)A fairly risky asset that pays interest.&#10;

Accepted Answer

The answer of The national debt is&#10;A)The amount by which...

Question 44

An obligation to make future payment is&#10;A)Debt refinancing.&#10;B)Debt service.&#10;C)A liability.&#10;D)An asset.&#10;

Accepted Answer

The answer of An obligation to make future payment is&#10;A)Debt...

Question 45

The U.S.government incurred a national debt for the first time during&#10;A)World War II.&#10;B)Ronald Reagan's presidency.&#10;C)The Revolutionary War.&#10;D)The Great Depression.&#10;

Accepted Answer

The answer of The U.S.government incurred a national debt for...

Question 46

Debt accumulation by the U.S.government in the 1980s:&#10;A)Was small compared with earlier periods of history.&#10;B)Exceeded the debt the country had accumulated over the preceding 200 years.&#10;C)Was caused by war-related expenditures.&#10;D)None of the choices are correct.&#10;

Accepted Answer

The answer of Debt accumulation by the U.S.government in the...

Question 47

In the 20th century,the ratio of the U.S.debt to GDP has&#10;A)Risen in response to wars.&#10;B)Been inversely related to the deficit to GDP ratio.&#10;C)Fallen during wartime compared with prewar levels.&#10;D)Fallen to its lowest levels during recessions or depressions.&#10;

Accepted Answer

The answer of In the 20th century,the ratio of the...

Question 48

The fiscal agent of the U.S.government is the&#10;A)U.S.Treasury.&#10;B)Federal Reserve System.&#10;C)Securities and Exchange Commission.&#10;D)Congress.&#10;

Accepted Answer

The answer of The fiscal agent of the U.S.government is...

Question 49

Increased government purchases crowd out private purchases whenever the economy is&#10;A)Experiencing an AD shortfall.&#10;B)On the production possibilities curve.&#10;C)Facing serious cyclical unemployment.&#10;D)Operating below full employment.&#10;

Accepted Answer

The answer of Increased government purchases crowd out private purchases...

Question 50

The U.S.federal debt that accumulated between 1970 and 2010&#10;A)Caused significant economic damage to the U.S.economy.&#10;B)Is an asset and a liability for the U.S.economy.&#10;C)Occurred at the expense of the foreign sector.&#10;D)Occurred without an increase in the size of the government sector.&#10;

Accepted Answer

The answer of The U.S.federal debt that accumulated between 1970...

Question 51

Which of the following would occur if the federal government decided to use a budget surplus to reduce the existing debt?&#10;A)Crowding out and public sector output would increase.&#10;B)Crowding out and public sector output would decrease.&#10;C)Crowding in and private sector output would increase.&#10;D)Crowding in and private sector output would decrease.&#10;

Accepted Answer

The answer of Which of the following would occur if...

Question 52

An increase in private sector borrowing and spending caused by decreased government borrowing is known as&#10;A)Crowding out.&#10;B)Crowding in.&#10;C)Crowding debt.&#10;D)Debt reduction.&#10;

Accepted Answer

The answer of An increase in private sector borrowing and...

Question 53

An opportunity cost that occurs because of increased government spending is&#10;A)Congressional disagreements.&#10;B)The crowding in of public sector investment.&#10;C)The crowding out of private sector output.&#10;D)An increase in private sector investment.&#10;

Accepted Answer

The answer of An opportunity cost that occurs because of...

Question 54

Which of the following best describes the federal budget during the 1990s?&#10;A)The absolute size of the deficit fell.&#10;B)The relative size of the deficit fell.&#10;C)The absolute size of the debt grew to over $5 trillion.&#10;D)There was a steady downward trend in the relative size of the deficit.&#10;

Accepted Answer

The answer of Which of the following best describes the...

Question 55

For the United States,from the 1980s to today,there has been an increase in both absolute size and relative size (relative to GDP)for the federal government in&#10;A)The deficit and the debt.&#10;B)The deficit,but not the debt.&#10;C)The debt,but not the deficit.&#10;D)Neither the deficit nor the debt.&#10;

Accepted Answer

The answer of For the United States,from the 1980s to...

Question 56

Policies designed to pay off the national debt will result in:&#10;A)A higher level of aggregate demand.&#10;B)A redistribution of income but not wealth.&#10;C)A smaller level of aggregate demand&#10;D)Inflation.&#10;

Accepted Answer

The answer of Policies designed to pay off the national...

Question 57

Crowding in is the result of&#10;A)Falling interest rates.&#10;B)Declining business confidence.&#10;C)Rising unemployment.&#10;D)Rising government borrowing.&#10;

Accepted Answer

The answer of Crowding in is the result of&#10;A)Falling interest...

Question 58

When the Federal Reserve System buys bonds in the open market,the national debt&#10;A)Must increase.&#10;B)Must increase as long as the Fed buys only newly issued bonds.&#10;C)Is not affected.&#10;D)Will decrease because the Fed is a government agency.&#10;

Accepted Answer

The answer of When the Federal Reserve System buys bonds...

Question 59

A measure of the burden of continual deficit financing over time is the ratio of&#10;A)The deficit to the GDP.&#10;B)The debt to the GDP.&#10;C)The deficit to the debt.&#10;D)Tax revenues to the debt.&#10;

Accepted Answer

The answer of A measure of the burden of continual...

Question 60

The opportunity cost of the debt is&#10;A)The interest payments on the debt.&#10;B)Less of an issue if the economy is below full employment since crowding out is less likely to occur.&#10;C)Not an issue if the debt is financed internally.&#10;D)The decrease in public sector output because of government borrowing.&#10;

Accepted Answer

The answer of The opportunity cost of the debt is&#10;A)The...

Question 61

The &#34;real burden&#34; of the debt is directly related to&#10;A)The idea of opportunity cost.&#10;B)The difference between internally held debt and externally held debt.&#10;C)The relationship between the Treasury and the Federal Reserve System.&#10;D)How transfers redistribute income.&#10;

Accepted Answer

The answer of The &#34;real burden&#34; of the debt is...

Question 62

The burden of the internal portion of the debt is incurred&#10;A)When the debt-financed activity takes place.&#10;B)Solely by the U.S.government.&#10;C)When the debt comes due.&#10;D)None of the choices are correct.&#10;

Accepted Answer

The answer of The burden of the internal portion of...

Question 63

Which of the following owns the largest portion of the U.S.national debt?&#10;A)Foreigners.&#10;B)The federal government.&#10;C)The private sector.&#10;D)State and local governments.&#10;

Accepted Answer

The answer of Which of the following owns the largest...

Question 64

Federal agencies hold roughly _____ percent of all outstanding Treasury bonds.&#10;A)50&#10;B)66&#10;C)30&#10;D)16&#10;

Accepted Answer

The answer of Federal agencies hold roughly _____ percent of...

Deck 12: Deficits and Debt