Question 1

A budget surplus is
A)An excess of government spending over government revenues in a given time period.
B)An excess of government revenues over government expenditures in a given time period.
C)Used only in time of war.
D)None of the choices are correct.

Accepted Answer

A budget surplus is when the government takes in more money (revenues) than it spends on programs and services (expenditures) over a given period of time. This can occur during times of economic growth or when government spending is lower than expected. It is the opposite of a budget deficit, which occurs when government spending exceeds revenues. Budget surpluses can be used to pay down debt, save for future spending, or invest in new programs and services. It is not limited to times of war.

Question 2

Which of the following is an argument against balancing the federal budget?
A)The federal government interferes with the economy too much.
B)An increase in government spending and taxes by the same amount does not affect income.
C)Doing so may prevent the government from pulling the economy out of recession.
D)None of the choices are correct.

Accepted Answer

Balancing the federal budget during an economic recession can harm the economy by reducing spending, which can lead to job losses and a decrease in consumer spending. Therefore, balancing the budget may prevent the government from pulling the economy out of a recession.

Question 3

If the economy is in a recession,
A)It is operating inside the production possibilities curve,and the opportunity cost of deficit spending is zero.
B)Deficit spending will not increase the size of the debt because interest rates will be falling.
C)The economy suffers from structural unemployment,which can be alleviated by debt refinancing.
D)Larger deficits will decrease the national debt.

Accepted Answer

During a recession, the economy operates inside the production possibilities curve because resources are underutilized. The opportunity cost of deficit spending is low or zero because the economy is not at full capacity, meaning resources that would otherwise be idle can be employed without sacrificing other goods and services.

Question 4

In order to reduce the U.S.debt,
A)The government must use deficit spending.
B)The government should spend less than it collects in tax revenues.
C)There will be a transfer of revenue from bondholders to taxpayers.
D)Foreign governments must lend more money to the U.S.government.

Accepted Answer

In order to reduce the U.S. debt, the government should spend less than it collects in tax revenues. This will lead to a budget surplus, which can be used to pay down the national debt. Deficit spending, which involves spending more than what the government collects in tax revenues, would only add to the debt. A transfer of revenue from bondholders to taxpayers would not necessarily reduce the debt, but could be a potential solution for reducing interest payments on the debt. Relying on foreign governments to lend more money to the U.S. government would only add to the debt and make the country more dependent on foreign investment.

Question 5

Discretionary expenditures account for approximately
A)One-fifth of the federal budget.
B)One-half of the federal budget.
C)One-third of the federal budget.
D)Three-fourths of the federal budget.

Accepted Answer

The answer of Discretionary expenditures account for approximately
A)One-fifth of the...

Question 6

The fiscal year for the federal government begins on
A)January 1.
B)The first Monday in January.
C)November 1.
D)October 1.

Accepted Answer

The federal government's fiscal year begins on October 1st and ends on September 30th of the following year. This means that the government's budget and appropriations for the next fiscal year must be approved by Congress and signed by the President before the start of the fiscal year on October 1st.

Question 7

Which of the following is true about the U.S.federal government budget for the year 1998?
A)The U.S.Constitution was amended to require a balanced federal budget.
B)The federal budget deficit was the largest in history.
C)Federal government receipts were greater than federal government spending for the first time in more than 25 years.
D)Federal government outlays were greater than federal government receipts for the first time in more than 25 years.

Accepted Answer

Federal government receipts were greater than federal government spending for the first time in more than 25 years in the year 1998. The U.S. Constitution was not amended to require a balanced federal budget. The federal budget deficit was not the largest in history in the year 1998. Federal government outlays were not greater than federal government receipts for the first time in more than 25 years in the year 1998.

Question 8

Deficit spending results whenever the government
A)Issues bonds to finance the debt.
B)Finances current expenditures that exceed current tax revenues.
C)Refinances the debt.
D)None of the choices are correct.

Accepted Answer

Deficit spending occurs when the government spends more money than it takes in through tax revenues. This excess spending must be financed somehow, often through borrowing or printing more money. Therefore, option B correctly describes deficit spending as financing current expenditures that exceed current tax revenues. Options A and C refer to ways that the government may handle its debt, but do not describe deficit spending itself. Option D is incorrect as there is a correct answer.

Question 9

The elements of the federal budget not determined by past legislative or executive commitments are
A)Uncontrollable fiscal spending.
B)Fiscal restraint items.
C)Discretionary fiscal spending.
D)Automatic stabilizers.

Accepted Answer

Discretionary fiscal spending refers to spending that is not determined by past commitments and can be adjusted by Congress and the President. This type of spending includes programs such as education, infrastructure, and defense, and is subject to annual appropriations by Congress. Uncontrollable fiscal spending, on the other hand, refers to spending on programs such as Social Security and Medicare, which are determined by eligibility and benefit formulas set by Congress and are therefore not easily adjustable. Fiscal restraint items would refer to measures taken to reduce overall government spending or balance the budget, while automatic stabilizers refer to features of the tax and transfer system that automatically adjust in response to changes in the economy (e.g. increased unemployment benefits during a recession).

Question 10

The fiscal year
A)Is the 12-month period used for federal government accounting purposes.
B)Begins in January for the federal government.
C)Is the period during which the government must balance the budget.
D)None of the choices are correct.

Accepted Answer

The fiscal year is the 12-month period used for federal government accounting purposes. It begins on October 1st and ends on September 30th of the following year.

Question 11

According to Keynes,an unbalanced budget is appropriate in all of the following situations except
A)The economy is below full employment.
B)Leakages and injections are out of balance.
C)Macro equilibrium is above full employment.
D)The economy is at full employment.

Accepted Answer

According to Keynes, an unbalanced budget (fiscal deficit or surplus) is appropriate when the economy is below full employment, leakages and injections are out of balance, or macro equilibrium is above full employment. However, when the economy is at full employment (i.e. there is no remaining spare capacity), an unbalanced budget may lead to inflation and destabilize the economy. Therefore, an unbalanced budget is not appropriate in this situation.

Question 12

Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint?
A)More government expenditure and higher taxes.
B)More government expenditure and lower taxes.
C)Less government expenditure and higher taxes.
D)Less government expenditure and lower taxes.

Accepted Answer

Less government expenditure and higher taxes will reduce the budget deficit while achieving greater fiscal restraint. Decreasing government expenditure will cut down on unnecessary spending, and an increase in taxes will bring in more revenue for the government. This combination will reduce the deficit and promote fiscal restraint by limiting government spending.

Question 13

If full-employment output exceeds equilibrium output,greater deficit spending will result in a
A)Smaller recessionary gap.
B)Smaller inflationary gap.
C)Larger recessionary gap.
D)None of the choices are correct.

Accepted Answer

When full-employment output exceeds equilibrium output, it indicates a recessionary gap. Greater deficit spending, typically through increased government spending or tax cuts, stimulates the economy, increasing demand and pushing equilibrium output closer to full-employment output, thus reducing the recessionary gap.

Question 14

With an increase in deficit spending,the
A)U.S.Treasury buys more bonds.
B)U.S.exports increase.
C)Aggregate supply curve shifts to the right.
D)Aggregate demand curve shifts to the right.

Accepted Answer

Deficit spending increases demand for goods and services, which leads to an increase in aggregate demand. Therefore, the aggregate demand curve shifts to the right.

Question 15

Which of the following represents the use of fiscal policy to achieve a fiscal stimulus?
A)Greater government expenditure or lower taxes.
B)Greater government expenditure or higher taxes.
C)Lower government expenditure or lower taxes.
D)Lower government expenditure or higher taxes.

Accepted Answer

A fiscal stimulus refers to increasing government spending or reducing taxes to boost economic activity. Option A represents both of these measures, with greater government expenditure and lower taxes. Therefore, A is the correct answer.

Question 16

When there is excess aggregate demand,the appropriate fiscal policy would be for the government to
A)Make budget surpluses smaller.
B)Make budget surpluses larger.
C)Make budget deficits larger.
D)Increase the public debt.

Accepted Answer

When there is excess aggregate demand, the appropriate fiscal policy would be to make budget surpluses larger. This can be achieved by either increasing taxes or decreasing government spending, both of which would help to cool down the economy by reducing the amount of money circulating in the economy.

Question 17

The use of government taxes and spending to alter economic outcomes is known as
A)Monetary policy.
B)Fiscal policy.
C)Incomes policy.
D)Foreign trade policy.

Accepted Answer

Fiscal policy involves the use of government taxes and spending to alter economic outcomes such as inflation, unemployment, and economic growth. Monetary policy, on the other hand, involves adjusting interest rates and money supply to achieve these outcomes. Incomes policy refers to government intervention in setting wage and price levels, and foreign trade policy refers to government policies affecting international trade.

Question 18

With greater deficit spending,ceteris paribus,
A)Aggregate spending should fall.
B)Any inflationary gap will become larger.
C)There are greater leakages.
D)There is inadequate information to tell what happens to aggregate spending.

Accepted Answer

Greater deficit spending means the government is spending more than it is collecting in revenue, which leads to an increase in the money supply. This increase in the money supply leads to an increase in aggregate demand, which can create an inflationary gap. Therefore, any existing inflationary gap would become larger with greater deficit spending.

Question 19

If full-employment income and equilibrium income are equal for a country,then a tax cut will result in
A)Excess AD.
B)Output exceeding desired expenditure.
C)Leakages exceeding injections.
D)Undesired inventory accumulation.

Accepted Answer

If full-employment income and equilibrium income are equal, then the economy is already producing at its potential output level. A tax cut will increase disposable income and consumption, resulting in an increase in aggregate demand. As a result, there will be excess aggregate demand in the economy, which can lead to inflationary pressures.

Question 20

Which of the following is an appropriate fiscal policy prescription for the government to follow?
A)Deficit reduction during a recession.
B)Deficit reduction when there is excess AD.
C)Deficit expansion in an inflationary gap.
D)Deficit reduction during a war.

Accepted Answer

Deficit reduction when there is excess aggregate demand (AD) is appropriate because it helps to cool down the economy, reducing inflationary pressures. This is achieved by decreasing government spending or increasing taxes, which lowers aggregate demand.

Quiz 12: Deficits and Debt

A budget surplus is

Which of the following is an argument against balancing the federal budget?

If the economy is in a recession,

In order to reduce the U.S.debt,

Discretionary expenditures account for approximately

The fiscal year for the federal government begins on

Which of the following is true about the U.S.federal government budget for the year 1998?

Deficit spending results whenever the government

The elements of the federal budget not determined by past legislative or executive commitments are

The fiscal year

According to Keynes,an unbalanced budget is appropriate in all of the following situations except

Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint?

If full-employment output exceeds equilibrium output,greater deficit spending will result in a

With an increase in deficit spending,the

Which of the following represents the use of fiscal policy to achieve a fiscal stimulus?

When there is excess aggregate demand,the appropriate fiscal policy would be for the government to

The use of government taxes and spending to alter economic outcomes is known as

With greater deficit spending,ceteris paribus,

If full-employment income and equilibrium income are equal for a country,then a tax cut will result in

Which of the following is an appropriate fiscal policy prescription for the government to follow?