Question 1

The federal budget deficit is found by:

Accepted Answer

A)   subtracting government tax revenues plus government borrowing from government spending in a particular year.
B)   subtracting government tax revenues from government spending in a particular year.
C)   cumulating the differences between government spending and tax revenues over all years since the nation's founding.
D)   subtracting government revenues from the non-investment-type government spending in a particular year.E) B) and D)
F) None of the above

Question 2

Which of the following best describes the notion of a "political business cycle"?

Accepted Answer

A)   Politicians are more willing to cut taxes and increase government spending than they are to do the reverse.
B)   Fiscal policy will result in alternating budget deficits and surpluses.
C)   Politicians will use fiscal policy to cause output,real incomes,and employment to be rising prior to elections.
D)   Despite good intentions,various timing lags will cause fiscal policy to reinforce the business cycle.E) B) and C)
F) C) and D)

Question 3

The table below shows the full-employment budget surplus as a percentage of GDP over a five-year period. 
Refer to the above information.In which year was fiscal policy contractionary?

Accepted Answer

A)   Year 2
B)   Year 3
C)   Year 4
D)   Year 5E) A) and B)
F) B) and C)

Question 4

4 B)  T3 C)  T2 D)  T1" class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram.Which tax system has the most built-in stability?

Accepted Answer

A)   T4
B)   T3
C)   T2
D)   T1E) B) and C)
F) C) and D)

Question 5

Refer to the diagram below.Which tax system will generate the largest cyclical deficits? 4 B)  T3 C)  T2 D)  T1" class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   T4
B)   T3
C)   T2
D)   T1E) A) and B)
F) B) and C)

Question 6

-Lines A and B in the above graph represent:

Accepted Answer

A)   the crowding-out effect.
B)   the interest-rate effect.
C)   investment demand curves.
D)   money demand curves.E) All of the above
F) B) and C)

Question 7

A public debt which is owed to foreigners can be burdensome because:

Accepted Answer

A)   foreign interest rates are persistently higher than domestic interest rates.
B)   payment of interest reduces the volume of goods and services available for domestic uses.
C)   payment of interest will conflict with a nation's foreign aid programs.
D)   payment of interest will necessarily have a deflationary effect on prices in the paying nation.E) A) and D)
F) None of the above

Question 8

Which is regarded as an automatic stabilizer in the economy?

Accepted Answer

A)   interest rates
B)   exchange rates
C)   the inflation rate
D)   the progressive income taxE) B) and C)
F) B) and D)

Question 9

If the economy has a cyclically adjusted budget surplus,this means that:

Accepted Answer

A)   the public sector is exerting an expansionary impact upon the economy.
B)   tax revenues would exceed government expenditures if full employment were achieved.
C)   the actual budget is necessarily also in surplus.
D)   the economy is actually operating at full employment.E) All of the above
F) B) and C)

Question 10

In an economy,the government wants to increase aggregate demand by $48 billion at each price level to increase real GDP and reduce unemployment.If the MPC is .75,then it could:

Accepted Answer

A)   reduce taxes by $12 billion.
B)   reduce taxes by $16 billion.
C)   reduce government spending by $12 billion.
D)   increase government spending by $18 billion.E) B) and C)
F) A) and D)

Question 11

A major reason that a public debt cannot bankrupt the Federal government is because:

Accepted Answer

A)   the public debt is mostly held by foreigners.
B)   the Federal government has the Social Security Trust Fund.
C)   the public debt can be easily refinanced.
D)   the Federal government can draw on its gold reserves.E) None of the above
F) B) and C)

Question 12

The following budget information is for a hypothetical economy.All data are in billions of dollars.
 
-Refer to the above data.The budget deficit in year 3 is:

Accepted Answer

A)   $175 billion.
B)   $3050 billion.
C)   $100 billion.
D)   $295 billion.E) C) and D)
F) All of the above

Question 13

Payment of interest on the public debt will:

Accepted Answer

A)   increase our current domestic standard of living.
B)   not have any effect on the distribution of income.
C)   probably decrease the income inequality.
D)   probably increase the income inequality.E) A) and B)
F) A) and D)

Question 14

The crowding-out effect suggests that:

Accepted Answer

A)   increases in consumption are always at the expense of saving.
B)   increases in government spending will close a recessionary gap.
C)   increases in government spending may raise the interest rate and thereby reduce investment.
D)   high taxes reduce both consumption and saving.E) A) and B)
F) C) and D)

Question 15

A contractionary fiscal policy in Canada which reduces domestic interest rates is most likely to:

Accepted Answer

A)   depreciate the international value of the dollar and increase Canadian net exports.
B)   depreciate the international value of the dollar and decrease Canadian net exports.
C)   appreciate the international value of the dollar and increase Canadian net exports.
D)   appreciate the international value of the dollar and decrease Canadian net exports.E) A) and D)
F) A) and C)

Question 16

With a regressive tax system,as the level of income increases in an economy,the average tax rate will:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain constant.
D)   either increase or decrease.E) A) and B)
F) B) and D)

Question 17

An expansionary fiscal policy is shown as a:

Accepted Answer

A)   rightward shift in the economy's aggregate demand curve.
B)   movement along an existing aggregate demand curve.
C)   leftward shift in the economy's aggregate supply curve.
D)   leftward shift in the economy's aggregate demand curve.E) A) and B)
F) B) and C)

Question 18

The crowding-out effect arises when:

Accepted Answer

A)   government borrows in the money market,thus increasing interest rates and net investment spending in the economy.
B)   government borrows in the money market,thus increasing interest rates and decreasing net investment spending.
C)   the progressivity of the tax system increases,thus decreasing interest rates and increasing net investment spending.
D)   the progressivity of the tax system decreases,thus decreasing interest rates and net investment spending.E) B) and C)
F) None of the above

Question 19

The "crowding-out effect" suggests that:

Accepted Answer

A)   tax increases are paid primarily out of saving and therefore are not an effective fiscal device.
B)   increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
C)   it is very difficult to have excessive aggregate spending in our economy.
D)   consumer and investment spending always vary inversely.E) A) and B)
F) A) and C)

Question 20

The crowding-out of investment may be avoided if a budget deficit is financed by issuing new money.

Accepted Answer

A) True 
 B)False

Exam 13: Fiscal Policy, Deficits, Surpluses, and Debt

Refer to the diagram below.Which tax system will generate the largest cyclical deficits?

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A contractionary fiscal policy in Canada which reduces domestic interest rates is most likely to:

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Payment of interest on the public debt will:

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Which is regarded as an automatic stabilizer in the economy?

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The "crowding-out effect" suggests that:

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A public debt which is owed to foreigners can be burdensome because:

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The crowding-out effect arises when:

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A major reason that a public debt cannot bankrupt the Federal government is because:

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-Lines A and B in the above graph represent:

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With a regressive tax system,as the level of income increases in an economy,the average tax rate will:

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The federal budget deficit is found by:

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The crowding-out of investment may be avoided if a budget deficit is financed by issuing new money.

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In an economy,the government wants to increase aggregate demand by $48 billion at each price level to increase real GDP and reduce unemployment.If the MPC is .75,then it could:

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An expansionary fiscal policy is shown as a:

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If the economy has a cyclically adjusted budget surplus,this means that:

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The table below shows the full-employment budget surplus as a percentage of GDP over a five-year period. Refer to the above information.In which year was fiscal policy contractionary?

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-Refer to the above diagram.Which tax system has the most built-in stability?

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The following budget information is for a hypothetical economy.All data are in billions of dollars. -Refer to the above data.The budget deficit in year 3 is:

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The crowding-out effect suggests that:

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Which of the following best describes the notion of a "political business cycle"?

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