Question 1

Expansionary fiscal policy is so named because it

Accepted Answer

A)  involves an expansion of the nation's money supply.
B)  necessarily expands the size of government.
C)  is aimed at achieving greater price stability.
D)  is designed to expand real GDP.

Question 2

Other things equal, the stock of capital inherited by future generations is likely to be smaller when government spending

Accepted Answer

A)  increases during a period of recession, rather than prosperity.
B)  is primarily for capital-type goods.
C)  is financed by borrowing.
D)  is financed by taxation.

Question 3

The crowding-out effect of the public debt may be dampened if the investment-demand curve is shifting to the right.

Accepted Answer

A) True 
 B)False

Question 4

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.

Question 5

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is

Accepted Answer

A)  active monetary policy.
B)  automatic fiscal policy.
C)  discretionary fiscal policy.
D)  active federal policy.

Question 6

Most economists believe that fiscal policy is

Accepted Answer

A)  better than monetary policy for "fine-tuning" the economy.
B)  better than monetary policy for month-to-month stabilization.
C)  not as good as monetary policy for month-to-month stabilization.
D)  not very good at pushing the economy in a particular direction.

Question 7

Fiscal policy refers to the

Accepted Answer

A)  deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.
B)  deliberate changes in government spending and taxes to achieve greater equality in the distribution of income.
C)  altering of the interest rate to change aggregate demand.
D)  fact that equal increases in government spending and taxation will be contractionary.

Question 8

A major advantage of the built-in or automatic stabilizers is that they

Accepted Answer

A)  simultaneously stabilize the economy and reduce the absolute size of the public debt.
B)  automatically produce surpluses during recessions and deficits during inflations.
C)  require no legislative action by Congress to be made effective.
D)  guarantee that the federal budget will be balanced over the course of the business cycle.

Question 9

Answer the question on the basis of the following sequence of events involving fiscal policy: (1)  The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession.(2)  Economists reach agreement that the economy is moving into a recession.(3)  A tax cut is proposed in Congress.(4)  The tax cut is passed by Congress and signed by the president.(5)  Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.The recognition lag of fiscal policy is reflected in events

Accepted Answer

A)  1 and 2.
B)  2 and 3.
C)  3 and 4.
D)  4 and 5.

Question 10

According to Congressional Budget Office (CBO)  projections,

Accepted Answer

A)  budget deficits are expected to give way to surpluses by the year 2017.
B)  Social Security will become insolvent by 2017.
C)  expiration of tax cuts in 2015 will cause the budget deficit to rise to record highs by 2017.
D)  budget deficits are expected to remain large for the next several years.

Question 11

Crowding out is a decrease in private investment caused by

Accepted Answer

A)  increased taxation by the government.
B)  increased borrowing by the government.
C)  increased consumer spending by households.
D)  increased exports to buyers in other nations.

Question 12

The goal of expansionary fiscal policy is to increase

Accepted Answer

A)  the price level.
B)  aggregate supply.
C)  real GDP.
D)  unemployment.

Question 13

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the

Accepted Answer

A)  crowding-out lag.
B)  recognition lag.
C)  operational lag.
D)  administrative lag.

Question 14

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)  government borrowing to finance the public debt increases the real interest rate and reduces private investment.
C)  it is very difficult to have excessive aggregate spending in a capitalist economy.
D)  consumer and investment spending always vary inversely.

Question 15

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

Accepted Answer

A)  an equality of tax receipts and government expenditures.
B)  an excess of tax receipts over government expenditures.
C)  an excess of government expenditures over tax receipts.
D)  a reduction of subsidies and transfer payments and an increase in tax rates.

Question 16

The crowding-out effect of expansionary fiscal policy suggests that

Accepted Answer

A)  government spending increases at the expense of private investment.
B)  imports replace domestic production.
C)  private investment increases at the expense of government spending.
D)  saving increases at the expense of investment.

Question 17

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

Accepted Answer

A)  the rate of inflation were zero.
B)  the economy were at full employment.
C)  the MPC were zero.
D)  the government had a balanced budget.

Question 18

If the cyclically adjusted budget deficit goes from 2 percent to 1 percent of GDP, then it indicates that fiscal policy has turned more contractionary.

Accepted Answer

A) True 
 B)False

Question 19

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 GDP.

Question 20

The cyclically adjusted budget tells us

Accepted Answer

A)  that in a full-employment economy, the federal budget should be in balance.
B)  that tax revenues should vary inversely with GDP.
C)  what the size of the federal budget deficit or surplus would be if the economy was at full employment.
D)  the actual budget deficit or surplus realized in any given year.

Exam 33: Fiscal Policy, Deficits, and Debt

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

Correct Answer
verified

Fiscal policy refers to the

Correct Answer
verified

Most economists believe that fiscal policy is

Correct Answer
verified

The cyclically adjusted budget tells us

Correct Answer
verified

Other things equal, the stock of capital inherited by future generations is likely to be smaller when government spending

Correct Answer
verified

The built-in stabilizers in the economy tend to

Correct Answer
verified

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is

Correct Answer
verified

Correct Answer
verified

If the cyclically adjusted budget deficit goes from 2 percent to 1 percent of GDP, then it indicates that fiscal policy has turned more contractionary.

Correct Answer
verified

Expansionary fiscal policy is so named because it

Correct Answer
verified

The goal of expansionary fiscal policy is to increase

Correct Answer
verified

The crowding-out effect suggests that

Correct Answer
verified

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

Correct Answer
verified

The crowding-out effect of expansionary fiscal policy suggests that

Correct Answer
verified

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

Correct Answer
verified

According to Congressional Budget Office (CBO) projections,

Correct Answer
verified

Crowding out is a decrease in private investment caused by

Correct Answer
verified

The crowding-out effect of the public debt may be dampened if the investment-demand curve is shifting to the right.

Correct Answer
verified

A major advantage of the built-in or automatic stabilizers is that they

Correct Answer
verified

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the

Correct Answer
verified

Exam 33: Fiscal Policy, Deficits, and Debt

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

Correct AnswerverifiedShow Answer

Fiscal policy refers to the

Correct AnswerverifiedShow Answer

Most economists believe that fiscal policy is

Correct AnswerverifiedShow Answer

The cyclically adjusted budget tells us

Correct AnswerverifiedShow Answer

Other things equal, the stock of capital inherited by future generations is likely to be smaller when government spending

Correct AnswerverifiedShow Answer

The built-in stabilizers in the economy tend to

Correct AnswerverifiedShow Answer

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the cyclically adjusted budget deficit goes from 2 percent to 1 percent of GDP, then it indicates that fiscal policy has turned more contractionary.

Correct AnswerverifiedShow Answer

Expansionary fiscal policy is so named because it

Correct AnswerverifiedShow Answer

The goal of expansionary fiscal policy is to increase

Correct AnswerverifiedShow Answer

The crowding-out effect suggests that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The crowding-out effect of expansionary fiscal policy suggests that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to Congressional Budget Office (CBO) projections,

Correct AnswerverifiedShow Answer

Crowding out is a decrease in private investment caused by

Correct AnswerverifiedShow Answer

The crowding-out effect of the public debt may be dampened if the investment-demand curve is shifting to the right.

Correct AnswerverifiedShow Answer

A major advantage of the built-in or automatic stabilizers is that they

Correct AnswerverifiedShow Answer

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the

Correct AnswerverifiedShow Answer

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