Question 1

Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP)  of $40 is imposed in this economy, we can conclude that the tax:

Accepted Answer

A)  enhances the economy's built-in stability.
B)  reduces the economy's built-in stability.
C)  neither increases nor decreases built-in stability.
D)  increases the MPC and therefore increases the size of the multiplier.E) None of the above
F) All of the above

Question 2

If the cyclically adjusted budget deficit increases from $200 billion to $250 billion and GDP remains constant over the two years:

Accepted Answer

A)  fiscal policy is expansionary.
B)  fiscal policy is contractionary.
C)  fiscal policy is neutral.
D)  the tax system is progressive.E) A) and D)
F) All of the above

Question 3

Crowding-out is the notion that:

Accepted Answer

A)  since tax revenues vary directly with GDP, a rise in the level of GDP will increase the budget surplus and limit expansion.
B)  deficit financing will increase the demand for money, increase the interest rate, and reduce the level of investment spending in the economy.
C)  the full-employment budget is the best indicator of whether a budget deficit crowds out investment.
D)  the actual budget is the best indicator of whether a budget deficit crowds out saving.E) A) and D)
F) B) and D)

Question 4

An expansionary fiscal policy can be partially offset by a(n) :

Accepted Answer

A)  increase in aggregate demand.
B)  increase in aggregate supply.
C)  depreciation of the dollar.
D)  decrease in net exports.E) B) and C)
F) A) and B)

Question 5

Contractionary fiscal policy is so named because it:

Accepted Answer

A)  involves a contraction of the nation's money supply.
B)  necessarily reduces the size of government.
C)  is aimed at reducing aggregate demand and thus achieving price stability.
D)  is expressly designed to contract real GDP.E) All of the above
F) A) and D)

Question 6

The crowding-out effect refers to the possibility that deficit spending may lead people to increase their saving in anticipation of higher future taxes.

Accepted Answer

A) True 
 B)False

Question 7

Due to automatic stabilizers, when income rises, government transfer spending:

Accepted Answer

A)  increases and tax revenues decrease.
B)  decreases and tax revenues increase.
C)  and tax revenues decrease.
D)  and tax revenues increase.E) A) and C)
F) None of the above

Question 8

If the government wishes to increase the level of real GDP, it might reduce:

Accepted Answer

A)  taxes.
B)  transfer payments.
C)  the size of the budget deficit.
D)  its purchases of goods and services.E) A) and B)
F) A) and C)

Question 9

The following budget information is for a hypothetical economy.All data are in billions of dollars.  Refer to the above data.The budget deficit in year 3 is:

Accepted Answer

A)  $175 billion.
B)  $3050 billion.
C)  $100 billion.
D)  $295 billion.E) A) and D)
F) A) and B)

Question 10

In an economy, the government wants to decrease aggregate demand by $24 billion at each price level to decrease real GDP and control demand-pull inflation.If the MPC is .75, then it could increase taxes by:

Accepted Answer

A)  $6 billion.
B)  $8 billion.
C)  $10 billion.
D)  $12 billion.E) All of the above
F) A) and D)

Question 11

If you are 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.E) None of the above
F) A) and D)

Question 12

If the full-employment deficit as a percentage of GDP is zero in one year, and 1 percent of GDP the next year, it can be concluded that:

Accepted Answer

A)  fiscal policy is expansionary.
B)  fiscal policy is contractionary.
C)  the federal government is borrowing money.
D)  the federal government is lending money.E) A) and C)
F) All of the above

Question 13

Built-in stability means that:

Accepted Answer

A)  an annually balanced budget will automatically offset the pro-cyclical tendencies created by state and local finance and thereby stabilizes the economy.
B)  with given tax rates and expenditures policies a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline will result in a deficit or a lower budget surplus.
C)  Parliament will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity.
D)  government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.E) C) and D)
F) B) and C)

Question 14

Which policy to finance the public debt might crowd-out private spending?

Accepted Answer

A)  borrowing money from the public in the money market
B)  decreasing government spending
C)  creating new money
D)  decreasing taxesE) C) and D)
F) A) and C)

Question 15

The most likely way the public debt burdens future generations is by:

Accepted Answer

A)  reducing the current level of investment.
B)  causing future unemployment.
C)  causing a slowly falling price level.
D)  reducing real interest rates.E) All of the above
F) C) and D)

Question 16

In the above diagram, tax revenues vary:

Accepted Answer

A)  directly with the level of GDP.
B)  inversely with the level of GDP.
C)  directly with the level of government spending.
D)  inversely with the level of government spending.E) A) and B)
F) A) and C)

Question 17

In an economy, the government wants to increase aggregate demand by $60 billion at each price level to increase real GDP and reduce unemployment.If the MPC is .9, then it could:

Accepted Answer

A)  decrease taxes by $6 billion.
B)  decrease taxes by $12 billion.
C)  increase government spending by $6 billion.
D)  increase government spending by $12 billion.E) B) and C)
F) A) and D)

Question 18

Suppose that in an economy with a MPC of .5 the government wanted to shift the aggregate demand curve rightward by $80 billion at each price level to expand real GDP.It could:

Accepted Answer

A)  reduce taxes by $160 billion.
B)  increase government spending by $80 billion.
C)  reduce taxes by $40 billion.
D)  increase government spending by $40 billion.E) A) and D)
F) A) and C)

Question 19

Which of the following is not a criticism of the lag effect of fiscal policy?

Accepted Answer

A)  Inflation
B)  Recognition
C)  Administration
D)  OperationalE) B) and C)
F) B) and D)

Question 20

If the economy is to have automatic stabilizers, when real GDP rises:

Accepted Answer

A)  tax revenues should fall.
B)  tax revenues should rise.
C)  government spending should rise.
D)  government spending should fall.E) B) and D)
F) B) and C)

Exam 13: Part B: Fiscal Policy, Deficits, Surpluses, and Debt

Due to automatic stabilizers, when income rises, government transfer spending:

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An expansionary fiscal policy can be partially offset by a(n) :

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If the full-employment deficit as a percentage of GDP is zero in one year, and 1 percent of GDP the next year, it can be concluded that:

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Contractionary fiscal policy is so named because it:

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In the above diagram, tax revenues vary:

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

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In an economy, the government wants to decrease aggregate demand by $24 billion at each price level to decrease real GDP and control demand-pull inflation.If the MPC is .75, then it could increase taxes by:

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If the government wishes to increase the level of real GDP, it might reduce:

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The crowding-out effect refers to the possibility that deficit spending may lead people to increase their saving in anticipation of higher future taxes.

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In an economy, the government wants to increase aggregate demand by $60 billion at each price level to increase real GDP and reduce unemployment.If the MPC is .9, then it could:

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Crowding-out is the notion that:

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Built-in stability means that:

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Which of the following is not a criticism of the lag effect of fiscal policy?

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If the economy is to have automatic stabilizers, when real GDP rises:

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The most likely way the public debt burdens future generations is by:

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Which policy to finance the public debt might crowd-out private spending?

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Suppose that in an economy with a MPC of .5 the government wanted to shift the aggregate demand curve rightward by $80 billion at each price level to expand real GDP.It could:

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The following budget information is for a hypothetical economy.All data are in billions of dollars. Refer to the above data.The budget deficit in year 3 is:

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Refer to the above data.If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, we can conclude that the tax:

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If the cyclically adjusted budget deficit increases from $200 billion to $250 billion and GDP remains constant over the two years:

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