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Exam 13: Fiscal Policy, Deficits, and Debt

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Question 141

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The federal government has a large public debt that it finances through borrowing. As a result, real interest rates are higher than otherwise and the volume of private investment spending is lower. This Illustrates the

A) equation-of-exchange effect.
B) paradox of thrift.
C) crowding-out effect.
D) net export effect.

E) C) and D)
F) A) and B)

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Question 142

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Expansionary fiscal policy during a recession means cutting taxes, increasing government spending, or taking both actions.

A) True
B) False

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Question 143

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The economic burden of World War II for the United States was primarily

List the five problems, criticisms, or complications that arise in the implementation of fiscal policy.

Differentiate between a budget deficit and the public debt.

The cyclically adjusted budget estimates the federal budget deficit or surplus if

Define fiscal policy.

The Medicare trust fund is expected, if current flows continue, to be depleted by 2024.

Tax increases and government spending cuts by state governments during recessions often reduce the expansionary impact of fiscal policy by the federal government.

$\begin{array} { | c | c | } \hline \text { Year } & \text { Deficit it as a \% of GDP } \\\hline 1 & 1.5 \% \\\hline 2 & 1.4 \\\hline 3 & 2.0 \\\hline 4 & 1.8 \\\hline 5 & 1.5 \\\hline\end{array}$ The accompanying table shows the cyclically adjusted budget de?cit as a percentage of GDP over a ?ve-year period. In which year was ?scal policy turning more expansionary?

The crowding-out effect works through interest rates, and it tends to

As of 2018, more than half of the total debt of the U.S. government was owed to foreigners.

Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions (2018) ?

The public debt is the accumulation of all deficits and surpluses that have occurred through time.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

The actual budget deficit of the federal government in 2018 was about $3.9 percent of GDP. On the basis of this information, it

$\begin{array} { | c | c | c | c | } \hline & \begin{array} { c } \text { Government } \\\text { Spending }\end{array} & \text { Tax Revenues } & \text { GDP } \\\hline \text { Year 1 } & \$ 450 & \$ 425 & \$ 2,000 \\\hline \text { Year 2 } & 500 & 450 & 3,000 \\\hline \text { Year 3 } & 600 & 500 & 4,000 \\\hline \text { Year 4 } & 640 & 620 & 5,000 \\\hline \text { Year 5 } & 680 & 580 & 4,800 \\\hline \text { Year 6 } & 600 & 620 & 5,000 \\\hline\end{array}$ The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the ?rst year of this nation's existence and Year 4 is the present year, the public debt as a percentage of GDP in year 4 is

Expansionary fiscal policy will tend to reduce the budget deficit.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward