Question 1

Refer to the data in the table above. In which year was the cyclical deficit the largest?

Accepted Answer

A)   2000
B)   1999
C)   2003
D)   2004E) All of the above
F) A) and D)

Question 2

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Accepted Answer

A)   Increased government spending or increased taxation, or a combination of the two actions
B)   Increased government spending or decreased taxation, or a combination of the two actions
C)   Increased government spending or increased taxation, but not a combination of the two actions
D)   Decreased government spending or decreased taxation, or a combination of the two actionsE) C) and D)
F) All of the above

Question 3

Through the start of 2009, Social Security revenues exceeded payouts, and the excess inflow was used to buy:

Accepted Answer

A)   Public lands
B)   Gold certificates
C)   Foreign securities
D)   Treasury securitiesE) A) and B)
F) A) and C)

Question 4

The flexibility of the price level tends to dampen the multiplier effect of fiscal policy.

Accepted Answer

A) True 
 B)False

Question 5

If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy will tend to be:

Accepted Answer

A)   Stronger
B)   Weaker
C)   The exact opposite of what was intended
D)   As the multiplier effect would predictE) B) and C)
F) All of the above

Question 6

The table below shows the cyclically-adjusted budget deficit as a percentage of GDP over a five-year period.  Refer to the information above. In which year was fiscal policy turning more expansionary?

Accepted Answer

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

Question 7

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 expenditure gap
C)   Increases in government spending may reduce private investment
D)   High taxes reduce both consumption and savingE) A) and C)
F) All of the above

Question 8

The built-in stabilizers in the economy tend to:

Accepted Answer

A)   Fully offset irregular swings in real GDP
B)   Magnify somewhat the irregular swings in real GDP
C)   Dampen the irregular swings in real GDP
D)   Overcompensate for the irregular swings in real GDPE) B) and C)
F) A) and D)

Question 9

Refer to the data in the table above. The direction of fiscal policy became more expansionary from:

Accepted Answer

A)   1999 to 2000
B)   2004 to 2005
C)   2002 to 2003
D)   2003 to 2004E) A) and D)
F) B) and D)

Question 10

Of the U.S. Federal debt held by foreigners in 2012, China held roughly:

Accepted Answer

A)   84%
B)   67%
C)   48%
D)   22%E) All of the above
F) A) and B)

Question 11

Actions by the Federal government that decrease the progressivity of the tax system:

Accepted Answer

A)   Decrease the amount of government spending
B)   Increase the effect of automatic stabilizers
C)   Decrease the effect of automatic stabilizers
D)   Increase the multiplier effectE) A) and C)
F) All of the above

Question 12

Which of the following fiscal policy changes would be the most expansionary?

Accepted Answer

A)   A $40 billion increase in government spending
B)   A $20 billion tax cut and $20 billion increase in government spending
C)   A $10 billion tax cut and $30 billion increase in government spending
D)   A $40 billion tax cutE) A) and B)
F) C) and D)

Question 13

The crowding-out effect from government borrowing to finance the public debt is reduced when:

Accepted Answer

A)   The economy is experiencing a period of high inflation
B)   The economy is operating at the full-employment level of output
C)   Public investment complements private investment
D)   Public investment substitutes for private investmentE) A) and C)
F) A) and B)

Question 14

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 2002E) A) and B)
F) B) and D)

Question 15

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

Accepted Answer

A)   Mildly reduce the income inequality in the U.S.
B)   Mildly increase the income inequality in the U.S.
C)   Have no impact on the income distribution in the U.S.
D)   Make the income distribution more equitable in the U.S.E) A) and D)
F) B) and C)

Question 16

The crowding-out effect tends to be stronger when the economy:

Accepted Answer

A)   Has a lot of excess productive capacity
B)   Is at, or close to, full employment
C)   Has a very small net exports or foreign sector
D)   Is a very open economy with a large foreign sectorE) B) and C)
F) A) and B)

Question 17

A Federal budget deficit exists when:

Accepted Answer

A)   Federal government assets are less than liabilities in a given year
B)   Federal government spending exceeds tax revenues in a given year
C)   Federal government spending is increasing in a given year
D)   Federal government taxation is decreasing in a given yearE) C) and D)
F) A) and C)

Question 18

A large public debt would not bankrupt the Federal government because it can refinance the debt or increase taxes to pay the debt.

Accepted Answer

A) True 
 B)False

Question 19

In 2012, foreign ownership of the total public debt of the U.S. was about:

Accepted Answer

A)   20%
B)   33%
C)   60%
D)   75%E) All of the above
F) A) and B)

Question 20

The cyclically-adjusted deficit as a percentage of GDP is 2 percent in Year 1. This cyclically-adjusted deficit becomes 1 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

Accepted Answer

A)   Fiscal policy was more expansionary
B)   Fiscal policy was more contractionary
C)   The Federal government is decreasing taxes
D)   The Federal government is increasing spendingE) A) and D)
F) A) and B)

Exam 13: Fiscal Policy, Deficits, and Debt

Actions by the Federal government that decrease the progressivity of the tax system:

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If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

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The crowding-out effect tends to be stronger when the economy:

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Refer to the data in the table above. In which year was the cyclical deficit the largest?

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In 2012, foreign ownership of the total public debt of the U.S. was about:

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The flexibility of the price level tends to dampen the multiplier effect of fiscal policy.

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

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A large public debt would not bankrupt the Federal government because it can refinance the debt or increase taxes to pay the debt.

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Which of the following fiscal policy changes would be the most expansionary?

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The crowding-out effect from government borrowing to finance the public debt is reduced when:

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The cyclically-adjusted deficit as a percentage of GDP is 2 percent in Year 1. This cyclically-adjusted deficit becomes 1 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

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The built-in stabilizers in the economy tend to:

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A Federal budget deficit exists when:

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Refer to the data in the table above. The direction of fiscal policy became more expansionary from:

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The table below shows the cyclically-adjusted budget deficit as a percentage of GDP over a five-year period. Refer to the information above. In which year was fiscal policy turning more expansionary?

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If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy will tend to be:

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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:

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Of the U.S. Federal debt held by foreigners in 2012, China held roughly:

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The crowding-out effect suggests that:

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Through the start of 2009, Social Security revenues exceeded payouts, and the excess inflow was used to buy:

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