Question 1

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

Accepted Answer

A)   stronger.
B)   weaker.
C)   the exact opposite of what was intended.
D)   as the multiplier effect would predict.

Question 2

Accepted Answer

A)   a tax reduction
B)   a tax reduction accompanied by an even larger reduction in government spending
C)   a tax increase accompanied by an even larger increase in government spending
D)   an increase in government spending

Question 3

Which of the following best describes the idea of a political business cycle?

Accepted Answer

A)   Politicians are more willing to cut taxes and increase government spending than they are to do the reverse.
B)   Fiscal policy will result in alternating budget deﬁcits and surpluses.
C)   Politicians will use ﬁscal policy to cause output, real incomes, and employment to be rising prior to elections.
D)   Despite good intentions, various timing lags will cause ﬁscal policy to reinforce the business cycle.

Question 4

Permanent tax reductions are more likely to be expansionary than temporary tax reductions.

Accepted Answer

A) True 
 B)False

Question 5

The American Recovery and Reinvestment Act of 2009 included mostly

Accepted Answer

A)   increases in taxes and in government spending.
B)   decreases in taxes and in government spending.
C)   increases in government spending and decreases in taxes.
D)   decreases in government spending and increases in taxes.

Question 6

Accepted Answer

A)   expansionary ﬁscal policy.
B)   a major recession.
C)   contractionary ﬁscal policy.
D)   demand-pull inﬂation.

Question 7

Refer to the diagram. Which tax system has the most built-in stability?

Accepted Answer

A)    T4T _ { 4 }T4​ 
B)    T3T _ { 3 }T3​ 
C)    T2T _ { 2 }T2​ 
D)    T1T _ { 1 }T1​

Question 8

Which of the following historically has not been a signiﬁcant contributor to the U.S. public debt?

Accepted Answer

A)   war ﬁnancing
B)   tax cuts and expenditure increases during the Great Recession
C)   recessions
D)   demand-pull inﬂation

Question 9

A tax reduction of a speciﬁc amount will be more expansionary the

Accepted Answer

A)   smaller is the economy's MPC.
B)   larger is the economy's MPC.
C)   smaller is the economy's multiplier.
D)   less is the economy's built-in stability.

Question 10

One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has

Accepted Answer

A)   the power to print money to ﬁnance the debt.
B)   a strong military to protect it from creditors.
C)   the capacity to pay off its outstanding debt with gold.
D)   the ability to decrease interest rates and increase investment spending.

Question 11

The two reasons why bankruptcy is a false concern about the public debt are

Accepted Answer

A)   government spending and taxation.
B)   reﬁnancing and taxation.
C)   investment and reﬁnancing.
D)   saving and investment.

Question 12

In 2018, the U.S. federal debt held by the public was

Accepted Answer

A)   held largely by foreign governments.
B)   about four times as large as the GDP.
C)   about twice as large as the GDP.
D)   about 76 percent of the size of the GDP.

Question 13

Government  Spending  Tax Revenues  GDP  Year 1 $450$425$2,000 Year 2 5004503,000 Year 3 6005004,000 Year 4 6406205,000 Year 5 6805804,800 Year 6 6006205,000\begin{array} { | c | c | c | c | } \hline & \begin{array} { c } 	ext { Government } \	ext { Spending }\end{array} & 	ext { Tax Revenues } & 	ext { GDP } \\hline 	ext { Year 1 } & \$ 450 & \$ 425 & \$ 2,000 \\hline 	ext { Year 2 } & 500 & 450 & 3,000 \\hline 	ext { Year 3 } & 600 & 500 & 4,000 \\hline 	ext { Year 4 } & 640 & 620 & 5,000 \\hline 	ext { Year 5 } & 680 & 580 & 4,800 \\hline 	ext { Year 6 } & 600 & 620 & 5,000 \\hline\end{array} Year 1  Year 2  Year 3  Year 4  Year 5  Year 6 ​ Government  Spending ​$450500600640680600​ Tax Revenues $425450500620580620​ GDP $2,0003,0004,0005,0004,8005,000​​  The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. A budget surplus occurred in year

Accepted Answer

A)   2.
B)   3.
C)   4.
D)   6.

Question 14

Accepted Answer

A)   reduce government expenditures and taxes by equal-size amounts.
B)   reduce government expenditures or increase taxes.
C)   increase government expenditures or reduce taxes.
D)   reduce unemployment compensation beneﬁts.

Question 15

Government  Spending  Tax Revenues  GDP  Year 1 $450$425$2,000 Year 2 5004503,000 Year 3 6005004,000 Year 4 6406205,000 Year 5 6805804,800 Year 6 6006205,000\begin{array} { | c | c | c | c | } \hline & \begin{array} { c } 	ext { Government } \	ext { Spending }\end{array} & 	ext { Tax Revenues } & 	ext { GDP } \\hline 	ext { Year 1 } & \$ 450 & \$ 425 & \$ 2,000 \\hline 	ext { Year 2 } & 500 & 450 & 3,000 \\hline 	ext { Year 3 } & 600 & 500 & 4,000 \\hline 	ext { Year 4 } & 640 & 620 & 5,000 \\hline 	ext { Year 5 } & 680 & 580 & 4,800 \\hline 	ext { Year 6 } & 600 & 620 & 5,000 \\hline\end{array} Year 1  Year 2  Year 3  Year 4  Year 5  Year 6 ​ Government  Spending ​$450500600640680600​ Tax Revenues $425450500620580620​ GDP $2,0003,0004,0005,0004,8005,000​​  The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. The public debt declined in year

Accepted Answer

A)   6.
B)   5.
C)   4.
D)   3.

Question 16

Tax revenues automatically increase during economic expansions and decrease during recessions.

Accepted Answer

A) True 
 B)False

Question 17

Accepted Answer

A)   cyclically adjusted budget surplus only.
B)   cyclically adjusted budget deﬁcit only.
C)   cyclically adjusted budget surplus and an actual budget surplus.
D)   cyclically adjusted deﬁcit and an actual budget deﬁcit.

Question 18

Proponents of the notion of a "political business cycle" suggest that

Accepted Answer

A)   the standardized budget is a better indicator of the state of the economy than the actual budget, for political reasons.
B)   cyclical swings in the economy are produced by the inherent political instability found in capitalist economies.
C)   a possible cause of economic ﬂuctuations is the use of ﬁscal policy by policymakers for political purposes and goals.
D)   there is constant political trading among policymakers that tends to make the economic policies of state and local governments procyclical.

Question 19

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 securities.

Question 20

If the crowding-out effect is at its maximum strength, it follows that an increase in government spending will

Accepted Answer

A)   cause aggregate demand and GDP to increase.
B)   cause aggregate demand and GDP to decrease.
C)   not affect aggregate demand and GDP.
D)   not cause the budget deﬁcit to increase.

Exam 13: Fiscal Policy, Deficits, and Debt

Correct Answer
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A tax reduction of a speciﬁc amount will be more expansionary the

Correct Answer
verified

The American Recovery and Reinvestment Act of 2009 included mostly

Correct Answer
verified

Which of the following best describes the idea of a political business cycle?

Correct Answer
verified

Proponents of the notion of a "political business cycle" suggest that

Correct Answer
verified

Correct Answer
verified

The two reasons why bankruptcy is a false concern about the public debt are

Correct Answer
verified

In 2018, the U.S. federal debt held by the public was

Correct Answer
verified

One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has

Correct Answer
verified

$Refer to the diagram. Which tax system has the most built-in stability? A) T _ { 4 } B) T _ { 3 } C) T _ { 2 } D) T _ { 1 }$ Refer to the diagram. Which tax system has the most built-in stability?

Correct Answer
verified

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

Correct Answer
verified

Tax revenues automatically increase during economic expansions and decrease during recessions.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If the crowding-out effect is at its maximum strength, it follows that an increase in government spending will

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Permanent tax reductions are more likely to be expansionary than temporary tax reductions.

Correct Answer
verified

Which of the following historically has not been a signiﬁcant contributor to the U.S. public debt?

Correct Answer
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Correct Answer
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Exam 13: Fiscal Policy, Deficits, and Debt

Correct AnswerverifiedShow Answer

A tax reduction of a speciﬁc amount will be more expansionary the

Correct AnswerverifiedShow Answer

The American Recovery and Reinvestment Act of 2009 included mostly

Correct AnswerverifiedShow Answer

Which of the following best describes the idea of a political business cycle?

Correct AnswerverifiedShow Answer

Proponents of the notion of a "political business cycle" suggest that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The two reasons why bankruptcy is a false concern about the public debt are

Correct AnswerverifiedShow Answer

In 2018, the U.S. federal debt held by the public was

Correct AnswerverifiedShow Answer

One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has

Correct AnswerverifiedShow Answer

Refer to the diagram. Which tax system has the most built-in stability?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Tax revenues automatically increase during economic expansions and decrease during recessions.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the crowding-out effect is at its maximum strength, it follows that an increase in government spending will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Permanent tax reductions are more likely to be expansionary than temporary tax reductions.

Correct AnswerverifiedShow Answer

Which of the following historically has not been a signiﬁcant contributor to the U.S. public debt?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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$Refer to the diagram. Which tax system has the most built-in stability? A) T _ { 4 } B) T _ { 3 } C) T _ { 2 } D) T _ { 1 }$ Refer to the diagram. Which tax system has the most built-in stability?

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