Question 1

The total value of U.S.Treasury bonds outstanding equals

Accepted Answer

The total value of U.S. Treasury bonds outstanding represents the federal government debt, which is the cumulative total of all past budget deficits and surpluses. It is not directly tied to the current deficit or surplus, or the cyclically adjusted budget deficit.

Question 2

The nation of Hyperbole is in a recession,and the government decides to increase taxes and reduce government spending to reduce the growing deficit.This will ________ aggregate demand and will likely ________ real GDP and employment.

Accepted Answer

Increasing taxes and reducing government spending will decrease aggregate demand, as people will have less money to spend and therefore will spend less. This decrease in aggregate demand will likely lower both real GDP and employment, as businesses will have less demand for their products and will need to cut back on production and lay off workers.

Question 3

The federal budget exhibited a $128.7 billion surplus in 2001 but moved to a deficit of $157.8 billion in 2002.Some argued the deficit was opened up because of the Bush 2001 tax cuts,but others argued that the deficit grew because of the recession suffered in 2001.Evaluate the validity of the second argument.

Accepted Answer

The answer of The federal budget exhibited a $128.7 billion...

Question 4

Which of the following best describes supply-side economics?

Accepted Answer

Supply-side economics focuses on the idea that tax rates can affect the incentive to work, save, and invest. By reducing tax rates on individuals and businesses, it is believed that they will have more resources available to invest in their businesses, leading to increased productivity and, in turn, increased aggregate supply. This approach is also known as trickle-down economics.

Question 5

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.

Accepted Answer

When the federal government runs a deficit, it spends more money than it takes in through revenue, which increases the federal government debt. On the other hand, when the federal government runs a surplus, it takes in more revenue than it spends, which decreases the federal government debt.

Question 6

The federal government debt as a percentage of GDP did not rise

Accepted Answer

During the 1960s, the federal government debt as a percentage of GDP was relatively stable and did not see the significant increases that occurred during the Great Depression, World War II, or the 1980s.

Question 7

Suppose the government wants to maintain a balanced budget.To achieve this goal,when the economy falls into recession government would need to ________ taxes,which would cause aggregate demand to ________.

Accepted Answer

To maintain a balanced budget during a recession, the government would need to increase taxes to offset decreased tax revenues from lower economic activity. Increasing taxes, however, would decrease aggregate demand by reducing the amount of income available for consumers to spend.

Question 8

Assume a country is required by law to balance the budget every year.Suppose aggregate demand falls,causing a recession and a budget deficit.To balance the budget,what would the government need to do with the level of government spending and taxes? How would these changes in government spending and taxes affect aggregate demand and the economy?

Accepted Answer

The answer of Assume a country is required by law...

Question 9

Some economists argue that the federal government should normally run a deficit at potential GDP,with the borrowed funds applied to

Accepted Answer

Running a deficit at potential GDP means that the economy is operating at full employment and any increase in government spending would not create inflationary pressures. In this situation, the borrowed funds should be applied to investment goods, such as infrastructure or research and development, which would increase productivity and long-term economic growth. This would also create job opportunities and increase demand in the short term, leading to a more stable economy.

Question 10

The total value of U.S.Treasury bonds outstanding is called the federal government debt.

Accepted Answer

The total value of U.S. Treasury bonds outstanding is a significant portion of the federal government debt, but the debt also includes other types of obligations such as notes and bills. Hence, the total value of U.S. Treasury bonds outstanding is not equal to the federal government debt, but it is a part of it.

Question 11

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

Accepted Answer

The answer of If the federal budget goes from a...

Question 12

How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?

Accepted Answer

The answer of How could the existence of an unemployment...

Question 13

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

Accepted Answer

A law requiring the government to balance its budget in each year would limit the government's ability to respond to changing economic circumstances and emergencies. This could lead to sudden cuts in spending or tax increases that could harm the economy. Additionally, it would make it difficult for the government to invest in long-term projects or address structural issues in the economy.

Question 14

The federal budget was in deficit from 1931 to 1939,except in the year 1937.Given this fact,how do you explain E.Cary Brown's statement,"Fiscal policy,then,seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work,but because it was not tried."

Accepted Answer

The answer of The federal budget was in deficit from...

Question 15

Increasing the federal budget deficit will contribute to increasing the federal government debt.

Accepted Answer

When the federal government spends more money than it receives through revenue, it results in a budget deficit. This deficit increases the federal government's debt as it borrows money to finance its operations. Therefore, increasing the federal budget deficit contributes to increasing the federal government debt.

Question 16

Accumulating debt poses a problem for the U.S.federal government because

Accepted Answer

A large debt-to-GDP ratio causes crowding out, which means that the government has to spend more money on paying off the debt, leaving less money available for other important investments such as education or infrastructure. This can slow down economic growth and development.

Question 17

The cyclically adjusted budget is calculated at potential GDP.

Accepted Answer

The cyclically adjusted budget is a measure that takes into account the possible effects of economic cycles on a country's budget. It is calculated based on potential GDP, which is an estimate of what a country's GDP would be if all resources were fully utilized. By using potential GDP, the cyclically adjusted budget can provide a more accurate picture of a country's fiscal health than a traditional budget that is calculated based on actual GDP.

Question 18

Borrowing to pay for long-lived capital expenditures makes sense as

Accepted Answer

Long-lived capital expenditures, such as a new building or machinery, provide benefits over many years. Therefore, it makes sense to spread the burden of paying for them over many years, rather than trying to pay for them all in one year. Borrowing to finance these expenditures allows for the cost to be spread out over time, making it more manageable for the company.

Question 19

If the federal budget has an actual budget surplus of $75 billion,but a cyclically adjusted budget surplus of $50 billion,then the economy must be above potential real GDP.

Accepted Answer

If the actual budget surplus is higher than the cyclically adjusted budget surplus, it suggests that the economy is growing faster than expected and is producing more income than anticipated. This indicates that the economy is operating above its potential real GDP.

Question 20

The budget deficit increases during wars and recessions.

Accepted Answer

During times of war and recessions, governments often increase spending on military operations, stimulus packages, and welfare programs. This leads to a decrease in tax revenue and an increase in government borrowing, resulting in a higher budget deficit.

Quiz 18: Fiscal Policy