Deck 12: Federal Budgets and Public Policy.

Question 1

Which of the following is true of the federal budget?

A) The federal budget is a plan that describes a government's monetary policy for the current financial year.
B) The federal budget is a plan that describes a government's fiscal policy for the current financial year.
C) The federal budget is a plan that describes the president's take on the economy.
D) The federal budget is a plan for federal government outlays and revenues for a specified period, usually a year.
E) The federal budget is a plan that describes the eligibility criteria of the major entitlement programs taken up by Congress for the current financial year.

Answer 1

The federal budget is a plan for federal government outlays and revenues for a specified period, usually a year.

Question 2

The federal budget is _____

A) submitted by Congress to the president and contains proposals for tax increases.
B) submitted by Congress to the president and contains proposals for government expenditures.
C) submitted by the president to Congress and contains spending proposals.
D) equal to government purchases plus cash and in-kind transfer payments.
E) usually planned for the calendar year, which starts in January.

Answer 2

submitted by the president to Congress and contains spending proposals.

Question 3

In 2016, interest payments on the national debt accounted for almost _____ of federal outlays.

A) 7 percent
B) 25 percent
C) 14 percent
D) 52 percent
E) 40 percent

Answer 3

7 percent

Question 4

The beginning of the formal budget process is signified by _____

A) Congress's submission of the Budget of the United States Government to the president.
B) the submission of the Economic Report of the President to Congress.
C) the president's submission of the Budget of the United States Government to Congress.
D) the passage of a budget resolution by Congress.
E) the president signing the budget into law.

Question 5

A budget resolution _____

A) is a continuing resolution of the previous budget.
B) is the congressional gestation period.
C) is a resolution on the dates of the budget cycle.
D) is a proposal on total outlays, spending by major category, and expected revenues.
E) is an agreement on total outlays, spending by major category, and expected revenues.

Question 6

In 2017, Social Security and Medicare payments account for almost _____ of federal outlays.

A) 7 percent
B) 25 percent
C) 15 percent
D) 38 percent
E) 52 percent

Question 7

What percentage of gross domestic product (GDP) is government outlays?

A) 5 percent
B) 10 percent
C) 17 percent
D) 34 percent
E) 50 percent

Question 8

The Budget of the United States Government is officially submitted by _____

A) the president to Congress and contains spending and revenue proposals for the upcoming fiscal year.
B) Congress to the president and contains spending and revenue proposals for the upcoming fiscal year.
C) the president to Congress and contains proposals for monetary policy.
D) Congress to the president and contains proposals for fiscal policy.
E) the president to Congress and is reviewed by the Supreme Court.

Question 9

In 2016, national defense accounted for almost _____ of federal outlays.

A) 25 percent
B) 15 percent
C) 40 percent
D) 50 percent
E) 60 percent

Question 10

The U.S. government's fiscal year extends from _____

A) January to December.
B) April of one year to March of the next year.
C) June of one year to May of the next year.
D) September of one year to August of the next year.
E) October of one year to September of the next year.

Question 11

The Economic Report of the President is prepared by _____

A) the president.
B) Congress.
C) the Office of Management and Budget.
D) the Council of Economic Advisers.
E) the Secretary of the Treasury.

Question 12

A _____ is a congressional agreement about total outlays, spending by major category, and expected revenues, which guides spending and revenue decisions by the many congressional committees and subcommittees.

A) continuing resolution
B) budget resolution
C) disclaimer vote
D) filibuster
E) stimulus plan

Question 13

In 2016, welfare spending accounted for almost _____ of federal outlays.

A) 5 percent
B) 10 percent
C) 13 percent
D) 20 percent
E) 31 percent

Question 14

The president's budget is presented to Congress _____

A) in the form of the Economic Report of the President.
B) in a report followed shortly by the Economic Report of the President.
C) at the beginning of the fiscal year.
D) in a report that should be voted up or down within 60 days.
E) in a report that requires a two-thirds vote for ratification.

Question 15

Which of the following categories constitutes the majority of federal outlays in 2017?

A) national defense
B) interest on the federal debt
C) Social Security, Medicare, and welfare
D) grants to states and localities
E) capital expenditures

Question 16

What was the size of the federal budget in 2016?

A) $2 trillion per year
B) $2.5 trillion per year
C) $3.8 trillion per year
D) $4.7 trillion per year
E) over $5 trillion per year

Question 17

Compared to 1960, by how much did the share of outlays going to national defense drop in 2016?

A) 25 percent
B) 15 percent
C) 40 percent
D) 50 percent
E) 60 percent

Question 18

A spike in "All Other Outlays" of the federal government in 2009 was due to _____

A) an increase in the financial aid given to Greece earlier that year.
B) an increase in expenditures on Social Security and Medicare.
C) the fiscal stimulus package passed earlier that year.
D) a sudden increase in military expenditure as a result of the war in Iraq.
E) an increase in the national debt earlier that year.

Question 19

What do federal outlays include?

A) taxes
B) borrowings
C) government purchases and transfer payments
D) consumption
E) investment

Question 20

Since the 1960s, the federal government has shifted its focus from national defense to _____

A) interest payments on borrowings.
B) environmental protection.
C) federal prisons.
D) income redistribution.
E) federal education aid.

Question 21

In the short run, a federal budget deficit will most likely _____

A) stimulate aggregate demand.
B) reduce federal debt.
C) boost economic growth.
D) reduce national saving.
E) boost domestic saving.

Question 22

The budget of an economy is said to be in deficit when _____

A) federal outlays exceed revenues.
B) federal revenues exceed outlays.
C) the anticipated inflation rate exceeds the actual rate.
D) there is a loss of value in the domestic currency with respect to one or more foreign currencies.
E) the anticipated interest rate exceeds the actual rate.

Question 23

Which of the following is true of an increase in the federal government budget surplus?

A) An increase in surplus results in a decrease in national saving.
B) An increase in surplus shifts the aggregate demand curve rightward.
C) An increase in surplus increases the federal debt.
D) An increase in surplus dampens aggregate demand in the short run.
E) An increase in surplus increases the natural rate of unemployment.

Question 24

Drawbacks of the federal government budget process include _____

A) the use of continuing resolutions that reward last year's programs without an adequate review of their performance.
B) Congress having too much control over the budget.
C) a short review period for Congress that results in poor choices in funding programs.
D) Congress having to approve a budget with at least a two-thirds majority vote.
E) the president having the power to cancel any proposed expenditure without the possibility of a Congressional override.

Question 25

In the short run, a surplus federal budget _____

A) reduces national saving.
B) reduces domestic saving.
C) stimulates aggregate demand.
D) inhibits economic growth in the long run.
E) reduces the federal debt.

Question 26

A continuing resolution is _____

A) an agreement that requires Congress to balance the budget on an annual basis.
B) an agreement that allows Congress to have a lot of control over the budgetary process.
C) an agreement that allows agencies to spend at the rate of the previous year's budget.
D) a decision made by congressional committees about the federal spending and revenue levels for five years.
E) a decision made by congressional committees to guarantee benefits for those who qualify for government transfer programs.

Question 27

Continuing resolutions are _____

A) budget agreements that allow agencies, in the absence of an approved budget, to spend at the rate of the previous year's budget.
B) legislative actions that guarantee benefits for those who qualify for government transfer programs such as Social Security and Medicare.
C) agreements about total outlays, spending by major category, and expected revenues of state governments.
D) budget resolutions that allow the federal government to allocate a fixed proportion of yearly outlays toward military related expenditures.
E) legislative actions undertaken to balance the budget.

Question 28

Budget agreements that allow agencies, in the absence of an approved budget, to spend at the rate of the previous year's budget are known as _____

A) continuing resolutions.
B) budget resolutions.
C) disclaimer votes.
D) filibusters.
E) stimulus plans.

Question 29

Because deadlines are frequently missed, budgets typically run from year to year based on _____

A) continuing resolutions.
B) budget resolutions.
C) congressional suggestions.
D) the suggestions of the president.
E) the suggestions of the president's Council of Economic Advisers.

Question 30

Problems with the federal government budget process include _____

A) tough choices to be made by Congress each year on which entitlement programs will receive full support.
B) the constitutional requirement of Congress to balance the budget on an annual basis.
C) an overly detailed budget that allows Congress to reward friends, thereby discouraging restraint on spending.
D) a short review period for Congress that results in poor choices in funding programs.
E) Congress having too much control over the budgetary process.

Question 31

A federal budget deficit _____

A) stimulates aggregate supply.
B) increases federal debt.
C) boosts economic growth.
D) boosts national saving.
E) boosts domestic saving.

Question 32

Which of the following is true of the federal budget process in the United States?

A) Congress must approve a budget with at least a two-thirds majority vote.
B) The federal budget must be balanced each year because the volume of international trade reduces if the government has a surplus or a deficit.
C) Most federal outlays are determined by existing laws.
D) Congress approves a budget that separates the capital budget from the operating budget.
E) Detailed budgeting allows the party in power to reward its supporters.

Question 33

In the short run, a surplus federal budget _____

A) reduces national saving.
B) boosts domestic saving.
C) stimulates aggregate demand.
D) inhibits economic growth in the long run.
E) increases the federal debt.

Question 34

The entire U.S. federal budget process, beginning with the delivery of the president's budget to Congress and ending with the beginning of the fiscal year, takes about _____.

A) one month
B) six months
C) nine months
D) one year
E) three months

Question 35

A(n) _____ provides guaranteed benefits for those who qualify under government transfer programs such as Social Security or Medicare.

A) entitlement program
B) excise tax
C) continuing resolution
D) biennial budget
E) employment benefits program

Question 36

Problems with the federal government budget process include _____

A) budgeting that allows the president too much discretion in spending decisions.
B) budgeting that increases the flexibility of discretionary fiscal policy.
C) a budget outline that needs to be approved with at least a two-thirds majority vote.
D) most of the expenditures being for entitlement programs.
E) a brief budgeting period that does not allow Congress to study whether the budget is an appropriate tool for fiscal policy.

Question 37

When a budget is not approved in time, _____

A) agencies operate on the basis of continuing resolutions.
B) agencies operate on the basis of a budget resolution developed by budget committees.
C) agencies tend to shut down.
D) the president can force Congress to act.
E) agencies borrow from the Federal Reserve.

Question 38

Which of the following is not a problem associated with the U.S. federal budget process?

A) the congressional committee framework
B) the lengthy budget process
C) the failure to meet deadlines
D) the lack of detail in the budget
E) uncontrollable budget items

Question 39

The budget of an economy is said to be in surplus when _____

A) federal outlays exceed revenues.
B) federal revenues exceed outlays.
C) the anticipated inflation rate exceeds the actual rate.
D) there is a loss of value in the domestic currency with respect to one or more foreign currencies.
E) the anticipated interest rate exceeds the actual rate.

Question 40

A federal budget deficit _____

A) stimulates aggregate supply.
B) reduces federal debt.
C) boosts economic growth.
D) reduces national saving.
E) boosts domestic saving.

Question 41

The problem with a detailed federal government budget is that _____

A) monetary policy becomes more difficult to implement.
B) it reduces the flexibility of discretionary fiscal policy.
C) Congress cannot keep it up to date.
D) there is a shortage of congressional committees that deal with the budget.
E) there is a short review period, resulting in poor choices in funding programs.

Question 42

Because of automatic stabilizers, _____

A) fiscal policy focuses on maintaining an annually balanced budget.
B) planning discretionary fiscal measures to reduce economic fluctuations is easy.
C) government budget deficits are zero if averaged out over the entire business cycle.
D) policy makers should be concerned less with balancing the budget annually.
E) government budget deficits are smaller during expansions and larger during contractions.

Question 43

A biennial budget _____

A) is more useful than an annual budget as a tool of discretionary fiscal policy.
B) is implemented by the federal government, while an annual budget is implemented by state governments.
C) would ensure that cabinet members spend more time on administering an approved budget and defending a proposed budget.
D) would encourage cabinet members to focus more on running their agencies rather than being involved in budget deliberations.
E) would require shorter-term economic forecasts than an annual budget.

Question 44

During a recession, higher welfare outlays _____

A) increase the size of the budget deficit even if the government does not undertake discretionary fiscal policy.
B) decrease the size of the budget deficit regardless of the government's discretionary fiscal policy.
C) increase the size of the budget deficit only if the government undertakes discretionary fiscal policy.
D) decrease the size of the budget deficit only if the government undertakes discretionary fiscal policy.
E) have the same effect on the budget deficit as they do in times of expansion.

Question 45

Prior to the Great Depression, deficits built during wars were _____

A) continuing, because military spending increased after a war, but tax revenue did not.
B) continuing, because military spending dropped after a war, but tax revenue did not.
C) self-correcting, because military spending dropped after a war, but tax revenue did not.
D) self-correcting, because military spending increased after a war, but tax revenue did not.
E) nonexistent, either during war or peacetime.

Question 46

If the government increased defense spending by $1 million and laid off enough Justice Department employees to decrease the Department of Justice budget by $1 million, which of the following is the likely net effect?

A) an increase in the budget deficit and transfer payments
B) an increase in the budget deficit and net taxes
C) a decrease in the budget deficit and government spending
D) no change in the budget deficit because there is no net change in government spending
E) no change in the budget deficit because neither defense spending nor the spending on the Department of Justice is included in government spending

Question 47

Prior to the Great Depression, when did federal deficits primarily occur?

A) during peacetime
B) during wartime
C) during recessions
D) during economic expansions
E) deficits never occurred prior to the Great Depression

Question 48

If the U.S. government spent $20 million paying people to dig holes in 2005 and then spent $30 million paying the same people to fill the holes up again that same year, we would expect the net effect to be a(n) _____

A) decrease in transfer payments.
B) increase in the budget deficit as transfer payments increased.
C) increase in the budget deficit as government purchases of goods and services increased by $50 million.
D) increase in the budget deficit as government purchases of goods and services increased by $30 million.
E) $10-million-dollar increase in the budget deficit.

Question 49

If the government increased Social Security benefits and decreased the salaries of government workers by the same amount, which of the following is the expected immediate effect?

A) an increase in the budget deficit and government purchases of goods and services
B) an increase in the budget deficit, but no change in government purchases of goods and services
C) an increase in the budget deficit and a decrease in government purchases of goods and services
D) no change in the budget deficit, because there has been no change in government purchases of goods and services
E) no change in the budget deficit, because government purchases of goods and services have decreased by the same amount as transfer payments have increased

Question 50

The federal budget deficit becomes _____ during recessions because _____.

A) smaller; transfer payments increase and tax revenues decline
B) larger; transfer payments increase and tax revenues decline
C) larger; both transfer payments and tax revenues increase
D) smaller; both transfer payments and tax revenues increase
E) smaller; both transfer payments and tax revenues decrease

Question 51

Which of the following would decrease the size of a federal budget deficit?

A) a recession
B) an increase in defense spending
C) an increase in the use of automatic stabilizers
D) an increase in taxes
E) an increase in transfer payments

Question 52

When has deficit financing been justified?

A) to decrease taxes
B) to increase in defense spending
C) to increase in the use of automatic stabilizers
D) to increase the economy's productivity
E) to increase in transfer payments

Question 53

According to Keynes' philosophy of government budgets, _____

A) chronic deficits accumulate into a national debt.
B) permanent surpluses are desirable.
C) fiscal policy focuses on maintaining an annually balanced budget.
D) deficits dampen aggregate demand in the short run and reduce the federal debt.
E) deficits are appropriate during recessions.

Question 54

Simplifying the budget document by concentrating only on major groupings and eliminating line items would _____

A) ensure that cabinet members spend more time administering an approved budget and defending a proposed budget.
B) require longer-term economic forecasts that are difficult to obtain.
C) prevent elected officials from including projects they prefer for their personal gains in the budget.
D) increase the flexibility of the discretionary fiscal policy implemented by the federal government.
E) require shorter-term economic forecasts that are easy to obtain.

Question 55

One way of improving the federal government budget process is to _____

A) switch to a two-year, or biennial, budget.
B) remove the Council of Economic Advisers from the process.
C) provide a detailed budget by focusing on all groupings and line items.
D) provide for automatic annual increases in all budget categories.
E) eliminate the role of congressional committees in the process.

Question 56

A possible budget reform involves _____

A) adopting a quadrennial budget.
B) breaking down the budget into increasingly small budget lines.
C) appointing agency heads with different priorities than those of elected representatives.
D) simplifying the budget document by concentrating only on major groupings and eliminating line items.
E) eliminating the operating budget.

Question 57

If the government decreased urban welfare payments by a dollar for every dollar increase in farm subsidies, which of the following is the likely net effect?

A) an increase in the budget deficit, because government spending has increased
B) a decrease in the budget deficit, because transfer payments are not included in the government's budget
C) an increase in the budget deficit, because transfer payments have increased
D) an increase in the budget deficit, because farm subsidies are transfer payments but urban welfare payments are not
E) no change in the budget deficit

Question 58

Suppose government purchases of goods and services increase by $200 and at the same time lump-sum taxes increase by $200. Which of the following is true in this case?

A) Whether the budget deficit will increase or decrease will depend on the value of the marginal propensity to consume.
B) The budget deficit will increase by $200.
C) The budget deficit will increase by $400.
D) The budget deficit will decrease as the economy expands.
E) There will be no change in the budget deficit.

Question 59

Which of the following reasons for maintaining federal budget deficits is inaccurate?

A) Deficits boost domestic saving, which in the long run could promote economic growth.
B) Deficits help reduce the size and duration of recessions through automatic stabilizers.
C) Deficits are used to finance capital projects.
D) Public spending through deficit financing wins support from voters.
E) A federal budget deficit stimulates aggregate demand.

Question 60

Is there justification for shifting some of the cost of capital projects to future taxpayers through issuing debt?

A) Yes, future taxes should be increased.
B) No, future taxes should be decreased.
C) Yes, because they will benefit from these investments.
D) No, because they will not benefit from these investments.
E) No. Capital projects should never be financed by issuing debt.

Question 61

Federal deficits amounted to 3.5 percent of the U.S. GDP by 2003 because of _____

A) the global financial crisis of 2002, which increased the rate of unemployment.
B) an increase in the cost of fighting the war against terrorism.
C) a rise in the stock market that decreased interest payment burdens for the government.
D) a decrease in military and defense spending due to the end of the war in Iraq.
E) an increase in welfare spending and Medicare expenses.

Question 62

The accepted philosophy on U.S. federal deficits prior to the Great Depression was that _____

A) the budget should be balanced cyclically.
B) a budget deficit does not matter as long as the economy is at full employment.
C) the budget should be annually balanced.
D) deficits dampen aggregate demand in the short run and reduce the federal debt.
E) spending decreases during expansions and increases during recessions.

Question 63

Which of the following statements is true?

A) Federal budget deficits became progressively smaller during the 1990s and turned into a surplus by 1998.
B) Federal spending declined relative to GDP, while federal revenues rose relative to GDP during the 1980s.
C) Functional finance says that policy makers should be concerned less with the economy's potential output and more with balancing the budget annually.
D) A disadvantage of functional finance is that it increases the level of unemployment during recessions.
E) A disadvantage of an annually balanced budget is that it dampens swings in the business cycle without increasing the national debt.

Question 64

What happens to deficits during expansions?

A) They increase, because tax revenues decline while spending programs increase.
B) They decrease, because tax revenues decline while spending programs decrease.
C) They increase, because personal income and corporate profits increase, boosting tax revenue.
D) They decrease, because personal income and corporate profits increase, boosting tax revenue.
E) They decrease during recessions and increase during expansions.

Question 65

What happens to deficits during recessions?

A) They increase, because tax revenues decline while spending programs increase.
B) They decrease, because tax revenues decline while spending programs decrease.
C) They increase, because personal income and corporate profits increase, boosting tax revenue.
D) They decrease because personal income and corporate profits increase, boosting tax revenue.
E) They decrease during recessions and increase during expansions.

Question 66

A(n) _____ is a budget philosophy that was followed prior to the Great Depression and aimed to match annual revenues with outlays, except during wartime.

A) annually balanced budget
B) annual surplus budget
C) biennial deficit budget
D) biennially balanced budget
E) cyclically balanced budget

Question 67

A disadvantage of functional finance is that it _____

A) does not focus on producing the potential level of output in an economy.
B) increases the level of unemployment during recessions.
C) lets chronic deficits magnify into a national debt, allowing them to reach an alarming level.
D) requires that the budget is balanced even during times of war.
E) magnifies fluctuations in the business cycle.

Question 68

According to the budget philosophy of functional finance, _____

A) the budget should be balanced annually.
B) surpluses should be run during periods of prosperity and deficits should be run during recessions.
C) the government budget should be whatever is necessary to have an economy operate at potential GDP.
D) the budget should never be in balance.
E) the rate of growth in the national debt should equal the rate of growth in the money supply.

Question 69

A major problem with the implementation of an annually balanced budget is that it _____

A) allows the national debt to burgeon with chronic deficits.
B) relies on government officials to budget for surpluses during economic booms in order to cover deficits during recessions.
C) requires annual revenues to match with outlays even during times of war, when there is a sudden increase in military expenditures.
D) magnifies fluctuations in the business cycle.
E) dampens swings in the business cycle.

Question 70

Which of the following correctly describes the trend in the federal budget during the 1980s?

A) Federal spending declined relative to GDP, while federal revenues rose relative to GDP.
B) Federal spending rose relative to GDP, while federal revenues declined relative to GDP.
C) Balanced budgets were passed through cooperation between the president and Congress.
D) The dollar depreciated, thereby lowering the budget deficit.
E) The budget deficit decreased and then disappeared, turning into a surplus in the 1980s.

Question 71

Until 1980, the national debt was mostly the result of _____

A) wartime borrowing.
B) inflation.
C) bad monetary policy.
D) wasteful Congressional spending.
E) Social Security obligations.

Question 72

In the United States, since the Great Depression, the federal government has _____

A) run budget deficits only in periods of recession.
B) run a budget deficit almost every year.
C) practiced a policy of annually balancing the budget.
D) run budget deficits only in wartime.
E) run a budget surplus in most years.

Question 73

Which of the following statements about the tax cut enacted in 1981 is correct?

A) The tax cut caused the recession of 1982.
B) The tax cut and the recession of 1982 combined to produce one of the largest peacetime deficits ever experienced up to that time.
C) The tax cut stimulated a large increase in economic activity and led directly to the balanced budget of 1982.
D) The tax cut was opposed by supply-side economists.
E) The tax cut was favored by Congress but opposed by the president and passed over his veto.

Question 74

If a government runs a cyclically balanced budget, its revenue will equal its expenditure _____

A) each year.
B) at each phase of the business cycle.
C) over the course of the business cycle.
D) only during expansions.
E) only during recessions.

Question 75

When budget deficits during recessions are covered by budget surpluses during expansions, it is called _____

A) an annually balanced budget.
B) a cyclically balanced budget.
C) crowding out.
D) crowding in.
E) a biennial balanced budget.

Question 76

An annually balanced budget _____

A) is the surest path to economic stability.
B) is mandated by the U.S. Constitution.
C) dampens cyclical swings by decreasing government spending during expansions and increasing it during recessions.
D) accentuates cyclical swings by increasing government spending during expansions and reducing it during recessions.
E) is a goal that has only been achieved twice in the past 5 years.

Question 77

A disadvantage of having an annually balanced budget is that government spending would have to _____

A) allow the national debt to burgeon with chronic deficits.
B) decline during a recession to offset the increase in tax revenues.
C) rise during a recession to match the increase in tax revenues.
D) rise during an expansion to offset the decline in tax revenues.
E) decline in a recession to match the decrease in tax revenues.

Question 78

Which of the following is true of an annually balanced federal budget?

A) Most economists agree that the federal government should balance its budget just as each household does.
B) Such a policy would require the government to increase its spending when tax receipts decrease.
C) Such a policy became popular between the 1930s and 1960s.
D) Such a policy guarantees that an economy reaches its potential level.
E) Such a policy could worsen a contractionary gap.

Question 79

A budget philosophy using fiscal policy to achieve the economy's potential GDP, rather than balancing budgets either annually or over the business cycle, is termed _____

A) budget finance.
B) functional finance.
C) crowding out.
D) crowding in.
E) deficit financing.

Question 80

In 1981, U.S. policy makers predicted a balanced budget, as _____

A) the budget included a decrease in defense expenditures.
B) the budget included an increase in the tax rate.
C) the budget included an increase in unspecified government spending.
D) the growth in GDP was expected to be large enough to lead to an increase in tax revenues despite the tax cut.
E) the growth in GDP was expected to be small enough to require less government spending.