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Exam 13: Fiscal Policy, Deficits, and Debt

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Question 161

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Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit

A) at all levels of GDP.
B) at any level of GDP above $400.
C) at any level of GDP below $400.
D) only when GDP is stable.

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Question 162

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Refer to the diagram. The degree of built-in stability in the economy could be increased by

A) reducing government purchases so that the purchases line shifts downward but parallel to its present position.
B) changing the tax system so that the tax line is shifted downward but parallel to its present position.
C) changing the tax system so that the tax line has a greater slope.
D) altering the government expenditures line so that it has a positive slope.

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Question 163

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Define public investments.

Built-in stability is synonymous with discretionary fiscal policy.

The payment of interest on the public debt in the United States mildly increases income inequality.

$\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Actual Budget Deficit (-) or } \\\text { Surplus (+) }\end{array} & \begin{array} { c } \text { Cyclically Adjusted Deficit (-) or Surplus } \\( + ) \end{array} \\\hline 1 & + 1.4 \% & + 0.1 \% \\\hline 2 & + 2.5 & + 1.1 \\\hline 3 & + 1.3 & + 1.1 \\\hline 4 & - 1.5 & - 1.1 \\\hline 5 & - 3.4 & - 2.7 \\\hline 6 & - 3.5 & - 2.4 \\\hline 7 & - 2.6 & - 1.8 \\\hline 8 & - 1.9 & - 1.8 \\\hline 9 & - 1.3 & - 1.4 \\\hline\end{array}$ Refer to the data in the table. The direction of ?scal policy became more contractionary from

Crowding out is a decrease in private investment caused by

An appropriate fiscal policy for a severe recession is

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

When Social Security contributions have exceeded payouts in the past, the excess amounts were used to help finance the federal government's budget deficits.

The actual and cyclically adjusted budgets will be equal when the economy is at full employment.

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

If the full-employment GDP for the economy is at L, then we can say with certainty that the

If the MPC in the economy is 0.75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy,

Which of the following serves as an automatic stabilizer in the economy?

A major reason that the public debt cannot bankrupt the federal government is because

The crowding-out effect will be minimal when the economy is in a severe recession.

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 that from Year 1 to Year 2,