Deck 14: Federal Budgets and Public Policy

Question 1

The Budget of the United States Government is officially submitted by

A)the President to the Congress and contains proposals for government expenditures
B)the Congress to the President and contains proposals for government expenditures
C)the President to the Congress and contains proposals for tax increases
D)the Congress to the President and contains proposals for tax increases
E)the President to the Congress and it is reviewed by the Supreme Court

Answer 1

A

Question 2

Approximately what percentage of the U.S. federal budget was used for interest payments on the national debt in 2013?

A)6 percent
B)10 percent
C)14 percent
D)25 percent
E)40 percent

Answer 2

A

Question 3

The U.S. government's fiscal year covers from

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

Answer 3

E

Question 4

The annual Economic Report of the President is written 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 5

Other things equal, an increase in defense spending will increase the budget deficit.

Question 6

The Employment Act of 1946

A)created the Council of Economic Advisers
B)established the Office of Management and Budget
C)centralized budgetary authority by establishing budget committees in the House and Senate
D)established the goal of a balanced budget
E)weakened the role of Congress in the budgetary process

Question 7

The federal government budget is

A)a year-end record of how much the government received in income and how much it spent
B)a plan for government expenditures and revenues for the coming year
C)always in balance: receipts must equal expenditures
D)equal to government receipts minus government expenditures
E)usually planned for the calendar year: January through December

Question 8

The U.S. federal budget is determined exclusively by Congress.

Question 9

Which of the following was not part of the legislation passed in 1921 changing the budgetary process?

A)presidential involvement in writing the budget
B)establishment of the Office of Management and Budget
C)creation of an agency to evaluate budget requests
D)creation of an agency to help the President formulate budget proposals
E)creation of the Council of Economic Advisers

Question 10

Government purchases of goods and services are not included in the government budget deficit but are included in the government purchases component of GDP.

Question 11

The President's budget is presented to Congress each year

A)in 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 form that must be voted up or down within 60 days
E)and requires a two-third vote for ratification

Question 12

Approximately what proportion of the U.S. federal budget was spent on national defense in 2013?

A)10 percent
B)18 percent
C)40 percent
D)54 percent
E)60 percent

Question 13

The federal government's fiscal year

A)is less than a calendar year in length
B)runs from October 1 to September 30
C)runs from January 1 to December 31
D)is actually 15 months in length
E)none of the above

Question 14

The entire U.S. federal budget process, beginning with 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 15

Approximately what percentage of the U.S. federal budget was used for Welfare payments in 2013?

A)5 percent
B)10 percent
C)14 percent
D)20 percent
E)31 percent

Question 16

Which institution was created under the Employment Act of 1946 to assist the President in formulating an appropriate fiscal policy?

A)the Council of Economic Advisers
B)the Board of Governors of the Fed
C)the Office of Management and Budget
D)the Fed's Open Market Committee
E)the Department of Commerce

Question 17

Transfer payments are included in the government budget deficit but not included in the government purchases component of GDP.

Question 18

The largest category of federal government expenditures is

A)national defense
B)interest on the federal debt
C)direct benefit payments to individuals
D)grants to states and localities
E)capital expenditures

Question 19

Approximately what percentage of the U.S. federal budget was used for Medicare payments in 2013?

A)5 percent
B)10 percent
C)14 percent
D)20 percent
E)41 percent

Question 20

Approximately what percentage of the U.S. federal budget was used for Social Security payments in 2013?

A)5 percent
B)10 percent
C)14 percent
D)22 percent
E)40 percent

Question 21

Approximately __________ of the budget falls into expenditure categories that are determined by existing law.

A)one-fourth
B)one-third
C)half
D)two-thirds
E)three-quarters

Question 22

Which of the following is not a problem 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)the portion of the budget over which Congress and the President have little control

Question 23

About three-quarters of the federal budget involves expenditure categories that are fixed by law (e.g., Social Security) and cannot readily be changed.

Question 24

The beginning of the formal budget process is signified by

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

Question 25

Only about one-fourth of the federal budget involves expenditure categories determined by existing obligations and laws (e.g., interest on the national debt, Social Security, and Medicare).

Question 26

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

A)When the surplus increases, revenues rise less than expenditures.
B)The aggregate demand curve shifts rightward as a result of an increasing surplus.
C)The unemployment rate falls as a result of an increasing surplus.
D)Such an increase in the surplus might close an expansionary gap.
E)The natural rate of unemployment increases as a result of an increasing surplus.

Question 27

The federal government spends more for national defense than for anything else.

Question 28

Problems with the federal government budget process include

A)Congress having to make tough choices each year on which entitlement programs, if any, will receive full support and how much partial support all others will receive
B)the constitutional requirement that Congress 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 speedy process that causes errors that are expensive to correct
E)continuing resolutions that force Congress to face tough budgetary decisions in a timely manner

Question 29

A continuing resolution

A)shuts down government agencies in the absence of an approved budget
B)allows agencies to spend at the rate of the previous year in the absence of an approved budget
C)enables Congress to override the President's budget
D)contributes to the efficiency of the federal budget process
E)is seldom used

Question 30

Federal spending (including transfer payments), as a percent of GDP,

A)has remained largely unchanged over the last 50 years
B)has exceeded 10 percent only in wartime periods
C)is less than half of state and local government spending
D)has increased since 1921
E)has greatly diminished in recent years

Question 31

Problems with the budget process include the fact that

A)all of the following
B)frequently missed timetables result in continuing resolutions replacing budgets
C)budgets are frequently overly detailed
D)much of federal spending is uncontrollable
E)overlapping budget authorities exist across committees

Question 32

Problems with the federal government budget process include

A)Congressional adoption of a budget outline that allows the President too much discretion in spending decisions
B)a streamlined Congressional committee structure that speeds the process and reduces uncertainty about funding
C)continuing resolutions that allow agencies to continue operating despite being abolished by Congress
D)most of the expenditures are for entitlement programs
E)a brief budget process that does not allow Congress to study whether the budget is an appropriate tool for activist fiscal policy

Question 33

Continuing resolutions are legislative actions undertaken to balance the budget.

Question 34

Almost one-half of federal spending consists of cash and "in kind" payments to individuals.

Question 35

The Council of Economic Advisers was created by

A)the same legislation which created the Federal Reserve Board
B)President John F. Kennedy
C)the Employment Act of 1946
D)the Office of Management and Budget
E)Congress in 1921

Question 36

When a budget is not approved in time for continued agency operation,

A)a continuing resolution is frequently used
B)a budget resolution must be developed
C)the agency usually shuts down
D)the President can force Congress to act
E)the agency must borrow from the Federal Reserve

Question 37

A continuing resolution provides authorization for continuing agency operation even after its budget has expired.

Question 38

A continuing resolution is

A)an annual determination on the part of Congress to improve the budget process
B)a decision to maintain a specific spending level for five years
C)a temporary extension of spending authority into the new fiscal year
D)the official name for the entire budget package when it is finally enacted
E)the result of a budget surplus

Question 39

It is possible for the budget deficit to change even if there is no change in discretionary fiscal policy.

Question 40

Problems with the federal government budget process include

A)the use of continuing resolutions that reward last year's programs without adequate review of performance
B)Congress having too much control over the budget since most government programs can be cut at any time
C)a short review period in Congress that results in poor choices in funding programs
D)a detailed revenue analysis that allows Congress to reward political favors through tax increases
E)the President's constitutional power to cancel any proposed expenditure without the possibility of a Congressional override

Question 41

An annually budgeted budget can only be met if automatic stabilizers are effective.

Question 42

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, we would expect the net effect to be

A)an increase in the budget deficit and in transfer payments
B)an increase in the budget deficit and in net taxes
C)an increase in the budget deficit and in 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 Department of Justice is included in government spending

Question 43

John Maynard Keynes is best known for advocating

A)a policy of annually balancing the budget
B)deficit spending by the federal government during recessions
C)the fixed-growth-rate monetary rule
D)adoption of the biennial budget process
E)an active monetary policy to prevent inflation

Question 44

One proposal for improving the budget process is to

A)switch to a two-year or biennial budget
B)remove the Council of Economic Advisers from the process
C)require more detail in the various line items of the budget
D)provide for automatic annual increases in all budget categories
E)eliminate the role of Congressional committees in the process

Question 45

Some economists argue that federal government capital projects, which offer benefits over a number of years, should be financed over a number of years and therefore involve deficit finance.

Question 46

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 47

In order for the government to increase spending, it must increase taxes to finance that spending.

Question 48

Which of the following has been advanced as a legitimate reason for federal budget deficits?

A)Both c and d are legitimate reasons for government budget deficits.
B)All of the following.
C)Deficits help reduce the size and duration of recessions through the automatic stabilizers.
D)Deficits have been used to finance capital projects.
E)If the government had to fund all of its programs with tax revenues, the programs wouldn't get funded.

Question 49

The federal budget has been in deficit in all but 9 years since 1960.

Question 50

If government increased Social Security benefits and decreased the salaries of government workers by the same amount, we would expect the immediate effect to be

A)an increase in the budget deficit and in 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 51

If for every dollar increase in farm subsidies the government decreased urban welfare payments by a dollar, we would expect the net effect to be

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 52

With few exceptions, the U.S. federal government has historically run a balanced budget.

Question 53

Suppose that government purchases of goods and services increase by $200 and at the same time lump-sum taxes are increased by $200. (It is important to note that income tax rates do not change.) Which of the following is true?

A)Whether the budget deficit increases or decreases will depend on the value of the MPC.
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 54

The budget deficit tends to decline during periods of recession and to increase during periods of economic recovery.

Question 55

One rationale for the sizable wartime deficits run by the U.S. government is that the alternative to defending the country from an aggressor may involve substantial long-term costs.

Question 56

Biannual budgets have replaced the annual budget process for the federal government.

Question 57

In Keynes' philosophy of government budgets,

A)permanent deficits are desirable
B)permanent surpluses are desirable
C)the goal is to have a budget surplus
D)surpluses are appropriate during recessions
E)deficits are appropriate during recessions

Question 58

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)the budget should never be balanced
E)deficits do not matter

Question 59

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 60

Because of automatic stabilizers, government budget deficits are

A)positive during both expansions and contractions
B)negative during both expansions and contractions
C)zero if averaged out over the entire business cycle
D)larger during expansions and smaller during contractions
E)smaller during expansions and larger during contractions

Question 61

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

A)increase in recessions and decrease during expansions
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 62

If a budget is cyclically balanced, the government should run a surplus when the economy experiences a contractionary gap.

Question 63

If the functional finance approach to federal budgeting is used, the federal government's budget deficit should be zero.

Question 64

If the 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 65

If government budgets were required to be annually balanced,

A)both d and e
B)income taxes could no longer be used
C)either government spending would have to fall or tax rates would have to increase during recessions
D)the government budget would have a greater stabilizing component
E)the automatic stabilizers would work better

Question 66

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 in almost every year
C)practiced a policy of annually balancing the budget
D)run budget deficits only in wartime
E)run a surplus in most years

Question 67

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 should not worry about whether the budget is balanced but worry instead about reaching the potential output level
D)the budget should never be in balance, no matter what
E)the rate of growth in the national debt should equal the rate of growth in the money supply

Question 68

Cyclical budget deficits refer to

A)the fact that deficits increase during expansions and decrease during contractions
B)the fact that deficits increase during contractions and decrease during expansions
C)the size of the deficit after the economy has gone through a complete business cycle
D)the size of the deficit when the economy is at potential GDP
E)none of the above

Question 69

An annually balanced budget

A)is the surest path to economic stability
B)is required 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 70

The most rapid period of growth of the federal debt in the past 50 years was the 15 year period beginning just after World War II ended.

Question 71

The functional finance philosophy is based on the idea that balancing the federal budget is less important than using it to promote an economy operating to its potential.

Question 72

During the Reagan presidency, tax rates were cut, government revenues fell below expectations, and there was a then-historic peacetime deficit.

Question 73

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 must do.
B)Such a policy would require government to increase its spending when tax receipts fell.
C)Such a policy became popular between the 1930s and 1960s.
D)Such a policy would guarantee that the economy always remained at its potential level.
E)Such a policy could worsen a contractionary gap.

Question 74

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 75

Federal budget deficits grow during recessions because

A)both tax revenues and transfer payments decrease
B)both tax revenues and transfer payments increase
C)tax revenues decrease while transfer payments increase
D)tax revenues increase while transfer payments decrease
E)tax revenues decrease but transfer payments are unchanged

Question 76

It took more than 200 years for the federal debt to reach $1 trillion and then only an additional 30 years to increase seven fold.

Question 77

If a budget is cyclically balanced, the government should run a surplus when the economy experiences an expansionary gap.

Question 78

According to the functional finance budget philosophy,

A)deficits should never be used to stimulate the economy
B)automatic stabilizers should be eliminated
C)the government budget should be whatever is necessary to have the economy operate at potential GDP
D)each government spending program should be financed on the basis of its function
E)the federal budget should be balanced in the long run

Question 79

It took more than 200 years for the federal debt to reach $1 trillion.

Question 80

Which of the following best describes the philosophy of functional finance?

A)The federal budget should be balanced each year.
B)A federal budget deficit should be permitted only during a business expansion.
C)A federal budget deficit should be permitted only during a recession.
D)Policy makers should focus on keeping the unemployment rate at the natural rate, even if this means budget deficits.
E)Policy makers should be less concerned about budget deficits and more concerned with increasing the natural rate of unemployment.