Question 1

The problem with a detailed federal government budget is that _____

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, _____

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 _____

Accepted Answer

The answer of A biennial budget _____
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Question 4

During a recession, higher welfare outlays _____

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 _____

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?

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?

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) _____

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?

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 _____.

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?

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?

Accepted Answer

The answer of When has deficit financing been justified?
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Question 13

According to Keynes' philosophy of government budgets, _____

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 _____

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 _____

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 _____

Accepted Answer

The answer of A possible budget reform involves _____
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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?

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?

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?

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?

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.