Question 1

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Accepted Answer

The largest U.S. federal budget deficits as a percentage of GDP in the 20th century occurred during World War I and World War II. During these periods, the government spent significant amounts of money on war efforts, leading to large deficits.

Question 2

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

Accepted Answer

An increase in government spending typically raises interest rates due to higher demand for funds, which can crowd out private investment in new capital by making borrowing more expensive.

Question 3

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Accepted Answer

The legislative process for implementing fiscal policy involves several steps, including drafting, debating, and passing a bill. This process can take months or even years, making it more difficult to implement fiscal policy quickly and effectively. In contrast, monetary policy decisions can be made relatively quickly by a central bank, allowing for faster responses to economic challenges.

Question 4

To evaluate the size of the federal budget deficit or surplus over time,it would be best to look at the

Accepted Answer

Looking at the budget deficit or surplus as a percentage of GDP is the best choice because it takes into account the size of the economy and allows for comparison over time. A larger deficit may not necessarily be a problem if the economy is growing at a similar rate, while a smaller deficit may be problematic if the economy is stagnant or contracting.

Question 5

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a ________ increase in government purchases would increase equilibrium real GDP by $157 billion

Accepted Answer

The government purchases multiplier of 1.57 indicates that for every $1 increase in government purchases, the equilibrium real GDP will increase by $1.57. Therefore, a $100 billion increase in government purchases would result in a $157 billion increase in equilibrium real GDP.

Question 6

Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.

Accepted Answer

Crowding out refers to a decrease in private expenditures as a result of an increase in government purchases. This is because when the government spends more, there is less money available for private investment and consumption, which can lead to higher interest rates and lower levels of economic growth.

Question 7

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,approximately one-third took the form of ________ and two-thirds took the form of increases in ________.

Accepted Answer

The question asks for the breakdown of the stimulus package in terms of its form. One-third of the package took the form of tax cuts, while two-thirds took the form of increases in government expenditures. Therefore, the best choice is D, which lists tax cuts and government expenditures as the two types of increases in the package.

Question 8

As spending on government purchases increases,income rises and money demand falls.

Accepted Answer

As spending on government purchases increases, income rises, which typically leads to an increase in money demand, not a decrease, because people need more money to carry out their increased transactions.

Question 9

The Congressional Budget Office estimates the size of the tax multiplier to be ________ for a 2-year tax cut for lower- and middle-income people.

Accepted Answer

According to the Congressional Budget Office, the size of the tax multiplier for a 2-year tax cut for lower- and middle-income people is estimated to be between 0.3 and 1.5. This suggests that a tax cut targeted at these income groups is likely to have a positive impact on economic growth, as each dollar of tax cuts will boost GDP by somewhere between 30 cents and $1.50.

Question 10

If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy,how might the expansionary monetary policy affect the extent of crowding out in the short run?

Accepted Answer

The answer of If Congress and the president pursue an...

Question 11

During 1970-1997,the U.S.federal government was

Accepted Answer

The answer of During 1970-1997,the U.S.federal government was
...

Question 12

Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.

Accepted Answer

The answer of Explain why the timing of fiscal policy...

Question 13

What is meant by crowding out? Explain the difference between crowding out in the short run and in the long run.

Accepted Answer

The answer of What is meant by crowding out? Explain...

Question 14

The Congressional Budget Office estimates the size of the government purchases multiplier to be

Accepted Answer

The government purchases multiplier is typically estimated to be between 0.5 and 2.5, reflecting the range of effects that government spending can have on the overall economy.

Question 15

An increase in government spending may expedite recovery from a recession in the short run,but in the long run this policy may

Accepted Answer

An increase in government spending may lead to a reduction in investment in new capital, as the government is likely to compete with the private sector for funding. As government spending increases, the demand for domestic products and services may lead to an appreciation of the currency, which may make domestic businesses less competitive in international markets. Additionally, the rise in interest rates due to increased government borrowing may reduce consumer expenditures on automobiles and new houses. Therefore, all the options given in the question are correct.

Question 16

Why will there be less crowding out of private spending by government spending the less sensitive consumption,investment,and net exports are to changes in interest rates?

Accepted Answer

The answer of Why will there be less crowding out...

Question 17

An increase in government spending will force an appreciation of the dollar,which causes net exports to fall.

Accepted Answer

An increase in government spending will lead to an increase in demand for domestic goods and services, which will cause the value of the dollar to appreciate. This appreciation will make US goods and services more expensive for foreigners, leading to a decrease in net exports.

Question 18

When President Obama took office in January 2009,he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession.The next month,Congress passed the American Recovery and Reinvestment Act of 2009,a $840 billion package of ________ that was the largest fiscal policy action in U.S.history.

Accepted Answer

The passage states that President Obama pursued an expansionary fiscal policy and that Congress passed a package that included "spending increases and tax cuts." Therefore, the best choice is A. The other choices (B, C, and D) involve monetary policy and/or bank bailouts, which are not mentioned in the passage as part of the American Recovery and Reinvestment Act of 2009.

Question 19

The Congressional Budget Office estimates the size of the tax multiplier to be ________ for a 1-year tax cut for higher-income people.

Accepted Answer

The tax multiplier for higher-income people is estimated to be lower (0.1 - 0.6) because higher-income individuals are less likely to spend additional income from tax cuts, reducing the impact on aggregate demand compared to lower-income individuals who are more likely to spend the extra income.

Question 20

Increases in government spending result in ________ in the short run,and permanent increases in government spending result in ________ in the long run.

Accepted Answer

Increases in government spending lead to partial crowding out in the short run because it increases the demand for goods and services, leading to higher prices and interest rates, reducing consumption and investment spending. However, in the long run, a permanent increase in government spending results in complete crowding out because it increases the government's demand for funds, leading to higher interest rates, which discourages private investment, thereby reducing the overall output and income.

Quiz 16: Fiscal Policy