Question 1

Which of the following is not a similarity between Medicare and Social Security?

Accepted Answer

A)  They are both "pay-as-you-go" plans.
B)  Their trust funds are both projected to be depleted within the next 30 years.
C)  Contributions are collected from both employers and employees.
D)  They are both intended to benefit older current workers.

Question 2

Which of the following statements is correct?

Accepted Answer

A)  The cyclically adjusted budget and the actual budget differ because the latter does not take government transfer payments into account.
B)  The cyclically adjusted budget is less likely to show a deficit than is the actual budget.
C)  The cyclically adjusted budget and the actual budget will show the same size deficit or surplus in any given fiscal year.
D)  The cyclically adjusted budget is more likely to show a deficit than is the actual budget.

Question 3

Countercyclical discretionary fiscal policy calls for

Accepted Answer

A)  surpluses during recessions and deficits during periods of demand-pull inflation.
B)  deficits during recessions and surpluses during periods of demand-pull inflation.
C)  surpluses during both recessions and periods of demand-pull inflation.
D)  deficits during both recessions and periods of demand-pull inflation.

Question 4

If you were told that the government had an actual budget deficit of $50 billion, then you would

Accepted Answer

A)  know that fiscal policy was expansionary.
B)  know that fiscal policy was contractionary.
C)  know that fiscal policy was producing a cyclical deficit.
D)  not be able to determine the direction of fiscal policy from the information given.

Question 5

Suppose the government cuts taxes to keep the economy's cyclically adjusted budget in balance when the economy is expanding.The government is engaging in a(n)

Accepted Answer

A)  contractionary fiscal policy.
B)  expansionary fiscal policy.
C)  low-interest-rate policy.
D)  neutral fiscal policy.

Question 6

The bursting of the dot-com bubble in 2000, along with the terrorist attacks in 2001, made the U.S.government

Accepted Answer

A)  decrease its cyclically adjusted budget deficit from 2000 to 2002.
B)  increase its cyclically adjusted budget surplus from 2000 to 2002.
C)  increase its cyclically adjusted budget deficit from 2000 to 2002.
D)  increase its actual budget surplus from 2000 to 2002.

Question 7

The amount by which government expenditures exceed revenues during a particular year is the

Accepted Answer

A)  public debt.
B)  budget deficit.
C)  full employment.
D)  GDP gap.

Question 8

Which of the following statements is correct?

Accepted Answer

A)  Built-in stability only partially offsets fluctuations in economic activity.
B)  Built-in stability works in halting inflation, but it cannot alleviate unemployment.
C)  Built-in stability can be relied on to eliminate completely any fluctuation in economic activity.
D)  Built-in stability has eliminated the need for discretionary fiscal policy.

Question 9

The political business cycle refers to the possibility that

Accepted Answer

A)  incumbent politicians will be reelected regardless of the state of the economy.
B)  politicians will manipulate the economy to enhance their chances of being reelected.
C)  there is more inflation during Democratic administrations than during Republican administrations.
D)  recessions coincide with election years.

Question 10

A public debt that is owed to foreigners can be burdensome because

Accepted Answer

A)  foreign interest rates are persistently higher than domestic interest rates.
B)  the payment of interest reduces the volume of goods and services available for domestic uses.
C)  the payment of interest will conflict with a nation's foreign aid programs.
D)  the payment of interest will necessarily have a deflationary effect on prices in the paying nation.

Question 11

Built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.Topic: Fiscal Policy and the AD-AS Model

Accepted Answer

A) True 
 B)False

Question 12

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 T and G undertaken expressly for stabilization at the option of Congress.
D)  is invoked secretly by the Council of Economic Advisers.Accessibility: Keyboard Navigation

Question 13

State and local governments are limited in their ability to respond to recessions because of

Accepted Answer

A)  local politics and politicians.
B)  their desire to always run budget surpluses.
C)  the lack of proper economic research and assistance.
D)  constitutional and other requirements to balance their budgets.

Question 14

The real burden of an increase in the public debt

Accepted Answer

A)  may be very small or conceivably zero when the economy is in a severe depression.
B)  will be smaller when full employment exists than when the economy has large quantities of idle resources.
C)  can be shifted to future generations if the debt is internally financed.
D)  can best be measured by the dollar increase in the size of the debt.

Question 15

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.

Question 16

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.

Question 17

Proponents of the notion of a "political business cycle" suggest that

Accepted Answer

A)  the standardized budget is a better indicator of the state of the economy than the actual budget, for political reasons.
B)  cyclical swings in the economy are produced by the inherent political instability found in capitalist economies.
C)  a possible cause of economic fluctuations is the use of fiscal policy by policymakers for political purposes and goals.
D)  there is constant political trading among policymakers that tends to make the economic policies of state and local governments procyclical.

Question 18

Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part of the economic cost of war.

Accepted Answer

A) True 
 B)False

Question 19

The key to assessing whether fiscal policy is expansionary or not is to observe the change in the cyclically adjusted budget balance.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is an important real consequence of the public debt of the United States?

Accepted Answer

A)  It will threaten to bankrupt the Federal government.
B)  It discourages saving among the general public.
C)  It decreases the inequality in the distribution of income in the U.S.
D)  Its consequent higher interest rates lead to fewer incentives to bear risk and innovate.

Exam 33: Fiscal Policy, Deficits, and Debt

The real burden of an increase in the public debt

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State and local governments are limited in their ability to respond to recessions because of

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Countercyclical discretionary fiscal policy calls for

Correct AnswerverifiedShow Answer

The political business cycle refers to the possibility that

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

Discretionary fiscal policy is so named because it

Correct AnswerverifiedShow Answer

Which of the following is not a similarity between Medicare and Social Security?

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Built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.Topic: Fiscal Policy and the AD-AS Model

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Which of the following statements is correct?

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The bursting of the dot-com bubble in 2000, along with the terrorist attacks in 2001, made the U.S.government

Correct AnswerverifiedShow Answer

Proponents of the notion of a "political business cycle" suggest that

Correct AnswerverifiedShow Answer

The key to assessing whether fiscal policy is expansionary or not is to observe the change in the cyclically adjusted budget balance.

Correct AnswerverifiedShow Answer

If you were told that the government had an actual budget deficit of $50 billion, then you would

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

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A public debt that is owed to foreigners can be burdensome because

Correct AnswerverifiedShow Answer

Suppose the government cuts taxes to keep the economy's cyclically adjusted budget in balance when the economy is expanding.The government is engaging in a(n)

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

The amount by which government expenditures exceed revenues during a particular year is the

Correct AnswerverifiedShow Answer

Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part of the economic cost of war.

Correct AnswerverifiedShow Answer

Which of the following is an important real consequence of the public debt of the United States?

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