Question 1

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.

Accepted Answer

A detailed federal government budget reduces the flexibility of discretionary fiscal policy because it allocates specific amounts of money to certain programs, making it difficult to shift funding in response to changing economic conditions or national priorities.

Question 2

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.

Accepted Answer

Automatic stabilizers are government spending and taxation programs that automatically decrease government spending and increase taxes during times of economic expansion, and increase government spending and decrease taxes during times of economic contraction. As a result, government budget deficits are smaller during expansions when tax revenues increase and spending on programs like unemployment benefits decrease, and larger during contractions when tax revenues decrease and spending on programs like unemployment benefits increase. Therefore, policy makers should be concerned less with balancing the budget annually due to the automatic stabilizers.

Question 3

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.

Accepted Answer

The answer of A biennial budget _____
A) is more useful...

Question 4

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.

Accepted Answer

During a recession, more people may become eligible for welfare programs and the government may need to increase the amount of benefits given to those already enrolled. This increases government spending, which in turn increases the size of the budget deficit, even if there is no discretionary fiscal policy being undertaken.

Question 5

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.

Accepted Answer

Deficits built during wars were typically self-correcting prior to the Great Depression because military spending would decrease after the war concluded, while tax revenue remained steady or increased, helping to balance the budget over time.

Question 6

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

Accepted Answer

The budget deficit would not change because the increase in defense spending is offset by the decrease in spending on the Department of Justice, resulting in no net change in total government spending.

Question 7

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

Accepted Answer

Prior to the Great Depression, federal deficits primarily occurred during wartime. The government would ramp up spending during times of war and often relied on borrowing to finance the increased spending.

Question 8

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.

Accepted Answer

The government spending $20 million to dig holes and then $30 million to fill them up again would be considered government purchases of goods and services, totaling $50 million. This would increase the budget deficit by the amount spent, assuming no offsetting revenue increases.

Question 9

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

Accepted Answer

The budget deficit remains unchanged because the increase in transfer payments (Social Security benefits) is offset by the decrease in government worker salaries, which are both part of the government's budget but do not affect the purchase of goods and services.

Question 10

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

Accepted Answer

During recessions, more individuals may become unemployed or experience a decrease in income. This results in an increase in transfer payments, such as unemployment insurance or food stamps, from the government to support these individuals. At the same time, tax revenues may decline if individuals and businesses have less income, resulting in less tax revenue being collected by the government. These two factors combined result in a larger federal budget deficit during recessions.

Question 11

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

Accepted Answer

Increasing taxes would increase government revenue, which would help decrease the size of a federal budget deficit.

Question 12

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

Accepted Answer

The answer of When has deficit financing been justified?
A) to...

Question 13

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.

Accepted Answer

According to Keynes' philosophy, deficits are appropriate during recessions to stimulate demand and support economic growth. Chronic deficits may accumulate into a national debt, but in the short run deficits can be beneficial for the economy. Permanent surpluses are not desirable as they may lead to deflation and reduced economic activity. Keynes did not advocate for maintaining an annually balanced budget, but rather for using government spending to stabilize the economy.

Question 14

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.

Accepted Answer

The answer of Simplifying the budget document by concentrating only...

Question 15

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.

Accepted Answer

Switching to a two-year, or biennial, budget would provide more time for Congress to consider and review the budget, reduce uncertainty for federal agencies and programs, and potentially reduce spending on unnecessary and wasteful programs. It could also allow for better long-term planning and alignment with strategic goals.

Question 16

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.

Accepted Answer

The answer of A possible budget reform involves _____
A) adopting...

Question 17

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

Accepted Answer

The budget deficit would likely see no change because the decrease in urban welfare payments would offset the increase in farm subsidies, keeping the overall government spending level constant.

Question 18

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.

Accepted Answer

When government purchases and lump-sum taxes both increase by an equal amount, there is no change in the budget deficit since there is no net change in government spending.

Question 19

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.

Accepted Answer

Deficits typically reduce domestic saving because the government borrows from the pool of savings that would otherwise be available for private investment. This can crowd out private investment and is not generally seen as a way to boost domestic saving.

Question 20

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.

Accepted Answer

Capital projects such as infrastructure investments can provide benefits to future taxpayers, such as improved transportation, utilities, or public facilities. If the benefits of the project are spread over many years, it may be reasonable to finance the initial costs with debt that is repaid over time. This spreads the cost of the investment across multiple generations that will benefit from it, and can enable governments to undertake projects that might not be feasible if they had to be fully funded upfront.

Quiz 12: Federal Budgets and Public Policy.

The problem with a detailed federal government budget is that _____

Because of automatic stabilizers, _____

A biennial budget _____

During a recession, higher welfare outlays _____

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

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?

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

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) _____

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?

The federal budget deficit becomes _ during recessions because _.

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

When has deficit financing been justified?

According to Keynes' philosophy of government budgets, _____

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

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

A possible budget reform involves _____

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?

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?

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

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