Question 1

Automatic stabilizers refer to
A) the money supply and interest rates that automatically increase or decrease along with the business cycle.
B) government spending and taxes that automatically increase or decrease along with the business cycle.
C) changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives.
D) changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

Accepted Answer

Automatic stabilizers refer to government spending and taxes that automatically increase or decrease along with the business cycle. For example, during an economic downturn, people may lose jobs and have lower incomes, which leads to lower tax revenues for the government. However, at the same time, government spending on programs like unemployment insurance automatically increases to provide assistance to those who have lost their jobs. This can help stabilize the economy without the need for deliberate policy changes.

Question 2

The largest and fastest-growing category of federal government expenditures is
A) grants to state and local governments.
B) interest on the national debt.
C) national park spending.
D) transfer payments.

Accepted Answer

Transfer payments, which are payments made by the government to individuals or families to assist with living expenses, have been increasing rapidly in recent years and are now the largest category of federal government expenditures. This includes programs like Social Security, Medicare, and Medicaid. Grants to state and local governments are also significant, but not as large as transfer payments. Interest on the national debt is a growing expense but still not as large as transfer payments. National park spending is a relatively small portion of the budget.

Question 3

Social Security began as a "pay-as-you-go" system, meaning that payments to current retirees were paid
A) from taxes collected from current workers.
B) from taxes collected from retired workers.
C) as long as the government had funds available.
D) as the government collected revenues from tariffs and excise taxes in the years Social Security payments were made.

Accepted Answer

Social Security is funded through payroll taxes paid by current workers. These taxes are then used to pay benefits to current retirees. The program was designed as a "pay-as-you-go" system to ensure that current retirees would receive benefits immediately after the program's inception.

Question 4

The three categories of federal government expenditures, in addition to government purchases, are
A) interest on the national debt, grants to state and local governments, and transfer payments.
B) interest on the national debt, defense spending, and transfer payments.
C) defense spending, budgets of federal agencies, and transfer payments.
D) defense spending, Social Security, and Medicare.

Accepted Answer

The three categories of federal government expenditures, in addition to government purchases, are interest on the national debt, grants to state and local governments, and transfer payments. These categories make up a significant portion of the federal budget and have important implications for economic policy and social welfare. Defense spending, Social Security, and Medicare are also significant categories of federal spending, but they are not included in the three categories listed.

Question 5

The largest source of federal government revenue in 2012 was
A) sales taxes.
B) corporate income taxes.
C) individual income taxes.
D) payroll taxes to fund Social Security and Medicare programs.

Accepted Answer

Individual income taxes accounted for 47% of the federal government's total revenue in 2012, making it the largest source of revenue. Corporate income taxes accounted for only 9%, while payroll taxes for Social Security and Medicare programs accounted for 36%. Sales taxes are not a major source of federal government revenue; most sales taxes are collected at the state and local level.

Question 6

Fiscal policy refers to changes in
A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives.
B) federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
C) federal taxes and purchases that are intended to fund the war on terrorism.
D) the money supply and interest rates that are intended to achieve macroeconomic policy objectives.

Accepted Answer

Fiscal policy refers to changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives, such as promoting economic growth and stability, controlling inflation, and reducing unemployment. State and local taxes and purchases can also impact the economy, but are not typically considered part of fiscal policy at the national level. Fiscal policy is distinct from monetary policy, which involves changes in the money supply and interest rates. The reference to funding the war on terrorism is not relevant to the definition of fiscal policy.

Question 7

Part of the spending on the Caldecott Tunnel project in northern California came from the American Reinvestment and Recovery Act, which is an example of ________ aimed at increasing real GDP and employment.
A) discretionary fiscal policy
B) an automatic stabilizer
C) contractionary fiscal policy
D) a transfer payment

Accepted Answer

The American Reinvestment and Recovery Act was a form of discretionary fiscal policy aimed at stimulating economic growth and creating employment opportunities.

Question 8

Federal government purchases, as a percentage of GDP,
A) have risen since the early 1950s.
B) have fallen since the early 1950s.
C) have remained roughly the same since the early 1950s.
D) rose from the early 1950s until the mid-1980s, and then fell.

Accepted Answer

Federal government purchases as a percentage of GDP have generally fallen since the early 1950s. This trend reflects a combination of factors, including the growth of the overall economy outpacing the growth in government spending, shifts in government priorities, and efforts to manage the federal budget.

Question 9

If Congress passed a one-time tax cut in order to stimulate the economy in 2014, and tax rate levels returned to their pre-2014 level in 2015, how should this tax cut affect the economy?
A) The tax cut would increase consumption spending less than would a permanent tax cut.
B) The tax cut would increase consumption spending more than would a permanent tax cut.
C) The tax cut would increase consumption spending by the same amount as would a permanent tax cut.
D) The tax cut would raise the price level in 2014.

Accepted Answer

A one-time tax cut is unlikely to significantly change long-term expectations about future income, meaning that households are unlikely to significantly increase their consumption spending in response to this type of tax cut. In contrast, a permanent tax cut would likely lead to higher consumption spending, as households can be more confident that their after-tax income will be higher over the long-term. Therefore, a one-time tax cut would increase consumption spending less than would a permanent tax cut.

Question 10

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of
A) automatic stabilizers.
B) discretionary fiscal policy.
C) discretionary monetary policy.
D) automatic monetary policy.

Accepted Answer

The increase in tax revenue during expansions and decrease in tax revenue during recessions are automatic stabilizers, which are built-in features of the economy that help to stabilize economic fluctuations without the need for active intervention by policymakers. Discretionary fiscal policy involves deliberate changes in government spending and taxation to influence the economy, while discretionary monetary policy involves deliberate changes in the money supply and interest rates by the central bank. Automatic monetary policy is not a recognized term in economics.

Question 11

Which of the following provides health-care coverage to people age 65 and over?
A) Medicaid
B) Medicare
C) Social Security
D) Health-Aid

Accepted Answer

Medicare provides health-care coverage to individuals who are 65 years old or older. Medicaid is a joint federal and state program that provides health coverage to low-income individuals and families. Social Security provides retirement, disability, and survivor benefits. Health-Aid is not a real health-care program.

Question 12

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of
A) automatic stabilizers.
B) discretionary fiscal policy.
C) discretionary monetary policy.
D) automatic monetary policy.

Accepted Answer

This is an example of automatic stabilizers, which are government policies that automatically kick in during a recession to help stabilize the economy without requiring explicit action from policymakers. In this case, the increase in government spending on unemployment insurance payments helps offset the decrease in consumer spending and aggregate demand during a recession. Similarly, during an expansion, the decrease in government spending on unemployment insurance payments helps prevent an overheating of the economy by reducing consumption and aggregate demand.

Question 13

Which of the following would be classified as fiscal policy?
A) The federal government passes tax cuts to encourage firms to reduce air pollution.
B) The Federal Reserve cuts interest rates to stimulate the economy.
C) A state government cuts taxes to help the economy of the state.
D) The federal government cuts taxes to stimulate the economy.
E) States increase taxes to fund education.

Accepted Answer

Fiscal policy involves government decisions related to taxation and spending to attain economic goals. The only option that aligns with this definition is the federal government cutting taxes to stimulate the economy.

Question 14

Since the Social Security system began in 1935, the number of workers per retiree has
A) stayed roughly the same.
B) continually risen.
C) continually declined.
D) risen and declined with different generations.

Accepted Answer

The number of workers per retiree has continually declined. In 1940, there were approximately 162 workers per retiree, but as of 2020, there were only about 2.8 workers per retiree. This is due to a combination of factors, including a declining birth rate, longer life expectancies, and more individuals reaching retirement age.

Question 15

Government transfer payments include which of the following?
A) interest on the national debt
B) grants to state and local governments
C) Social Security and Medicare programs
D) national defense

Accepted Answer

The answer of Government transfer payments include which of the...

Question 16

Before the Great Depression of the 1930s, the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.
A) state and local levels; federal level
B) local level; federal level
C) federal level; state and local levels
D) federal level; state level

Accepted Answer

Before the Great Depression, most government spending was at the state and local levels. After the Great Depression, with the implementation of New Deal programs and a shift towards a more centralized approach to economic recovery and social welfare, the majority of government spending shifted to the federal level.

Question 17

Which of the following would not be considered an automatic stabilizer?
A) legislation increasing funding for job retraining passed during a recession
B) decreasing unemployment insurance payments due to decreased jobless during an expansion
C) rising income tax collections due to rising incomes during an expansion
D) declining food stamp payments due to more persons finding jobs during an expansion

Accepted Answer

Automatic stabilizers are policies that automatically counterbalance economic fluctuations without any additional government intervention. Among the options given, legislation increasing funding for job retraining would require deliberate government intervention and hence cannot be considered an automatic stabilizer. The other options describe automatic stabilizers as decreasing government spending on unemployment insurance, increasing tax revenues due to rising incomes, and decreasing food stamp payments due to decreased poverty levels.

Question 18

From the 1960s to 2012, transfer payments
A) have risen from about 25 percent to 46 percent of federal government expenditures.
B) remained the same percentage of total federal government expenditures.
C) have declined by half as a percentage of total federal government expenditures.
D) have grown very slowly as a percentage of total federal government expenditures.

Accepted Answer

According to the information provided, transfer payments have risen from about 25 percent to 46 percent of federal government expenditures between the 1960s and 2012. Therefore, choice A is the correct answer.

Question 19

Federal government expenditures, as a percentage of GDP,
A) have risen since the early 1950s to the present.
B) have fallen since the early 1950s to the present.
C) rose from 1950 to 1991, fell from 1992 to 2001, and have risen from 2001 to the present.
D) rose from 1950 to 2001 and then fell from 2001 to the present.
E) rose from 1950 to 1980, fell from 1981 to 2001, and have risen from 2001 to the present.

Accepted Answer

Federal government expenditures as a percentage of GDP rose from 1950 to 1991, fell from 1992 to 2001, and have risen from 2001 to the present. This pattern can be seen in historical data from the US government, which shows that federal spending as a percentage of GDP peaked in 1945 during World War II and then gradually declined through the 1950s and 1960s, reaching a low of around 18% in the late 1990s. This decline was driven by factors such as the end of the Cold War, the introduction of budget caps and other fiscal restraints, and a strong economy that generated higher tax revenues. However, since the early 2000s, federal spending as a percentage of GDP has risen again due to factors such as the wars in Iraq and Afghanistan, the Great Recession, and the expansion of various social programs like healthcare and education.

Question 20

Which of the following is an objective of fiscal policy?
A) energy independence from Middle East oil
B) health care coverage for all Americans
C) discovering a cure for AIDs
D) high rates of economic growth
E) homeland security

Accepted Answer

High rates of economic growth is a common objective of fiscal policy, which is aimed at promoting economic stability and growth through government taxation and spending policies. The other options are not specific objectives of fiscal policy.

Quiz 27: Fiscal Policy

Automatic stabilizers refer to

The largest and fastest-growing category of federal government expenditures is

Social Security began as a "pay-as-you-go" system, meaning that payments to current retirees were paid

The three categories of federal government expenditures, in addition to government purchases, are

The largest source of federal government revenue in 2012 was

Fiscal policy refers to changes in

Part of the spending on the Caldecott Tunnel project in northern California came from the American Reinvestment and Recovery Act, which is an example of ________ aimed at increasing real GDP and employment.

Federal government purchases, as a percentage of GDP,

If Congress passed a one-time tax cut in order to stimulate the economy in 2014, and tax rate levels returned to their pre-2014 level in 2015, how should this tax cut affect the economy?

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of

Which of the following provides health-care coverage to people age 65 and over?

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

Which of the following would be classified as fiscal policy?

Since the Social Security system began in 1935, the number of workers per retiree has

Government transfer payments include which of the following?

Before the Great Depression of the 1930s, the majority of government spending took place at the and after the Great Depression the majority of government spending took place at the .

Which of the following would not be considered an automatic stabilizer?

From the 1960s to 2012, transfer payments

Federal government expenditures, as a percentage of GDP,

Which of the following is an objective of fiscal policy?