Question 1

Suppose the price level is ﬁxed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly) , government should

Accepted Answer

A)   increase government expenditures by $80 billion.
B)   reduce government expenditures by $40 billion.
C)   reduce taxes by $40 billion.
D)   reduce taxes by $80 billion.E) A) and C)
F) All of the above

Question 2

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

Accepted Answer

A) True 
 B)False

Question 3

An increase in the public debt and its subsequent repayment will tend to

Accepted Answer

A)   mildly reduce the income inequality in the United States.
B)   mildly increase the income inequality in the United States.
C)   have no impact on the income distribution in the United States.
D)   make the income distribution more equitable in the United States.E) All of the above
F) A) and D)

Question 4

The actual budget may be in deﬁcit while the cyclically adjusted budget is in surplus.

Accepted Answer

A) True 
 B)False

Question 5

Since 2009, when actual budget deﬁcits were nearly 10 percent of GDP,

Accepted Answer

A)   ﬁscal policy has become contractionary.
B)   the deﬁcits as a percentage of GDP have fallen, but ﬁscal policy has remained expansionary.
C)   deﬁcits as a percentage of GDP have continued to rise.
D)   deﬁcits as a percentage of GDP have remained constant but risen in dollar amounts.E) A) and D)
F) A) and C)

Question 6

The portion of the public debt owed to foreigners does not represent any real economic burden to
Americans because we received money from foreigners when we incurred the debt.

Accepted Answer

A) True 
 B)False

Question 7

When current government expenditures equal current tax revenues and the economy is achieving full employment,

Accepted Answer

A)   the cyclically adjusted budget has neither a deﬁcit nor a surplus.
B)   the cyclically adjusted budget may have either a deﬁcit or a surplus.
C)   ﬁscal policy is contractionary.
D)   nominal GDP and real GDP are equal.E) A) and D)
F) B) and D)

Question 8

Refer to the graph. A budget surplus would be associated with GDP level

Accepted Answer

A)   H.
B)   J.
C)   K.
D)   L.E) A) and B)
F) C) and D)

Question 9

If the budget deﬁcit becomes smaller, then it will cause the public debt to also become smaller.

Accepted Answer

A) True 
 B)False

Question 10

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government
Purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the
Government should

Accepted Answer

A)   encourage personal saving by increasing the interest rate on government bonds.
B)   decrease government expenditures.
C)   reduce tax rates and/or increase government spending.
D)   discourage private investment by increasing corporate income taxes.E) B) and C)
F) A) and D)

Question 11

The impact of an expansionary ﬁscal policy may be strengthened if it crowds out some private
investment spending.

Accepted Answer

A) True 
 B)False

Question 12

(Last Word) What is the long-run ﬁnancial problem for Social Security?

Accepted Answer

The long-run ﬁnancial problem for Social...

Question 13

Which of the following ﬁscal policy actions is most likely to increase aggregate supply?

Accepted Answer

A)   an increase in personal income tax rates
B)   a reduction in interest rates that encourages consumers to purchase more durable goods
C)   an increase in transfer payments to unemployed workers
D)   an increase in government spending on infrastructure that increases private sector productivityE) B) and C)
F) A) and D)

Question 14

The economy starts out with a balanced federal budget. If the government then implements expansionary ﬁscal policy, then there will be a

Accepted Answer

A)   trade deﬁcit.
B)   trade surplus.
C)   budget deﬁcit.
D)   budget surplus.E) A) and C)
F) A) and D)

Question 15

Accepted Answer

A)   cyclically adjusted budget surplus.
B)   cyclically adjusted budget deﬁcit.
C)   actual budget deﬁcit.
D)   actual budget surplus.E) C) and D)
F) None of the above

Question 16

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

Accepted Answer

A) True 
 B)False

Question 17

Accepted Answer

A)   do nothing since the economy appears to be achieving full-employment real output.
B)   increase taxes and reduce government spending to shift the aggregate demand curve rightward from AD AD2 to AD3A D _ { 2 } 	ext { to } A D _ { 3 }AD2​ to AD3​ 
C)   increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level.
D)   reduce taxes and increase government spending to shift the aggregate demand curve from AD2 to AD1A D _ { 2 } 	ext { to } A D _ { 1 }AD2​ to AD1​E) B) and C)
F) A) and D)

Question 18

A federal budget deﬁcit is ﬁnanced by the

Accepted Answer

A)   government purchase of Treasury securities.
B)   government issuance or sale of Treasury securities.
C)   nation's exports.
D)   private sector's investment spending.E) B) and C)
F) A) and B)

Question 19

Discretionary ﬁscal policy is so named because it

Accepted Answer

A)   is undertaken at the option of the nation's central bank.
B)   occurs automatically as the nation's level of GDP changes.
C)   involves speciﬁc changes in taxes and government spending undertaken expressly for stabilization at the option of Congress.
D)   is invoked secretly by the Council of Economic Advisers.E) C) and D)
F) A) and B)

Question 20

If the economy is to have signiﬁcant built-in stability, then when real GDP increases, the tax revenues should

Accepted Answer

A)   fall proportionately more than the change in GDP.
B)   fall proportionately less than the change in GDP.
C)   rise proportionately more than the change in GDP.
D)   rise proportionately less than the change in GDP.E) B) and D)
F) All of the above

Exam 13: Fiscal Policy, Deficits, and Debt

Refer to the graph. A budget surplus would be associated with GDP level

Correct Answer
verified

Discretionary ﬁscal policy is so named because it

Correct Answer
verified

Since 2009, when actual budget deﬁcits were nearly 10 percent of GDP,

Correct Answer
verified

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

Correct Answer
verified

An increase in the public debt and its subsequent repayment will tend to

Correct Answer
verified

A federal budget deﬁcit is ﬁnanced by the

Correct Answer
verified

If the budget deﬁcit becomes smaller, then it will cause the public debt to also become smaller.

Correct Answer
verified

The actual budget may be in deﬁcit while the cyclically adjusted budget is in surplus.

Correct Answer
verified

Suppose the price level is ﬁxed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly) , government should

Correct Answer
verified

Which of the following ﬁscal policy actions is most likely to increase aggregate supply?

Correct Answer
verified

Correct Answer
verified

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

Correct Answer
verified

Correct Answer
verified

The economy starts out with a balanced federal budget. If the government then implements expansionary ﬁscal policy, then there will be a

Correct Answer
verified

If the economy is to have signiﬁcant built-in stability, then when real GDP increases, the tax revenues should

Correct Answer
verified

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

Correct Answer
verified

When current government expenditures equal current tax revenues and the economy is achieving full employment,

Correct Answer
verified

(Last Word) What is the long-run ﬁnancial problem for Social Security?

Correct Answer
verified
The long-run ﬁnancial problem for Social...
View Answer

Correct Answer
verified

The impact of an expansionary ﬁscal policy may be strengthened if it crowds out some private investment spending.

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, and Debt

Refer to the graph. A budget surplus would be associated with GDP level

Correct AnswerverifiedShow Answer

Discretionary ﬁscal policy is so named because it

Correct AnswerverifiedShow Answer

Since 2009, when actual budget deﬁcits were nearly 10 percent of GDP,

Correct AnswerverifiedShow Answer

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

Correct AnswerverifiedShow Answer

An increase in the public debt and its subsequent repayment will tend to

Correct AnswerverifiedShow Answer

A federal budget deﬁcit is ﬁnanced by the

Correct AnswerverifiedShow Answer

If the budget deﬁcit becomes smaller, then it will cause the public debt to also become smaller.

Correct AnswerverifiedShow Answer

The actual budget may be in deﬁcit while the cyclically adjusted budget is in surplus.

Correct AnswerverifiedShow Answer

Suppose the price level is ﬁxed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly) , government should

Correct AnswerverifiedShow Answer

Which of the following ﬁscal policy actions is most likely to increase aggregate supply?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The economy starts out with a balanced federal budget. If the government then implements expansionary ﬁscal policy, then there will be a

Correct AnswerverifiedShow Answer

If the economy is to have signiﬁcant built-in stability, then when real GDP increases, the tax revenues should

Correct AnswerverifiedShow Answer

A contractionary ﬁscal policy shifts the aggregate demand curve leftward.

Correct AnswerverifiedShow Answer

When current government expenditures equal current tax revenues and the economy is achieving full employment,

Correct AnswerverifiedShow Answer

(Last Word) What is the long-run ﬁnancial problem for Social Security?

Correct AnswerverifiedThe long-run ﬁnancial problem for Social...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The impact of an expansionary ﬁscal policy may be strengthened if it crowds out some private investment spending.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The long-run ﬁnancial problem for Social...
View Answer

Correct Answer
verified

Correct Answer
verified