Question 1

Most of the U.S. public debt is owed to the nation's citizens and domestic institutions. This is one reason that the public debt:

Accepted Answer

A)   Crowds out private investment
B)   Does not impose a large burden on future generations
C)   Has a pro-cyclical economic effect on the economy
D)   Can result in the bankruptcy of the Federal governmentE) All of the above
F) None of the above

Question 2

Assume that if there was no crowding-out, an increase in government spending would increase GDP by $100 billion. If there had been partial crowding-out, however, then GDP would have:

Accepted Answer

A)   Increased by more than $100 billion
B)   Increased by less than $100 billion
C)   Increased by $100 billion
D)   Not increasedE) None of the above
F) All of the above

Question 3

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

Accepted Answer

A)   Fiscal policy turned more expansionary
B)   Fiscal policy turned more contractionary
C)   GDP increased
D)   GDP decreasedE) A) and B)
F) All of the above

Question 4

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 spendingE) B) and C)
F) A) and B)

Question 5

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

Accepted Answer

A) True 
 B)False

Question 6

A given reduction in government spending will dampen demand-pull inflation by a greater amount when the:

Accepted Answer

A)   Economy's MPS is large
B)   Economy's aggregate supply curve is flat
C)   Economy's aggregate supply curve is steep
D)   Unemployment rate is highE) A) and B)
F) B) and C)

Question 7

The Social Security Program is designed to pay:

Accepted Answer

A)   Current retirees using funds from their past contributions
B)   Current retirees using funds from current contributions
C)   The lower income groups using funds collected from high-income groups
D)   Older current workers using funds from younger current workersE) None of the above
F) B) and C)

Question 8

Built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.

Accepted Answer

A) True 
 B)False

Question 9

The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the crowding-out effect suggests that investment spending would:

Accepted Answer

A)   Increase, thus partially offsetting the fiscal policy
B)   Increase, thus partially reinforcing the fiscal policy
C)   Decrease, thus partially offsetting the fiscal policy
D)   Decrease, thus partially reinforcing the fiscal policyE) A) and B)
F) All of the above

Question 10

When the U.S. economy reached full employment in 2007, the cyclically-adjusted deficit that year was -1.3% of GDP. From this information, we know that the:

Accepted Answer

A)   Actual budget deficit must have been very close to 0% of GDP
B)   Government implemented a contractionary fiscal policy that year
C)   Actual budget deficit must have been very close to -1.3% of GDP
D)   Government implemented a more expansionary fiscal policy from 2006 to 2007E) B) and C)
F) None of the above

Question 11

The set of fiscal policies that would be most contractionary would be a(n) :

Accepted Answer

A)   Increase in government spending and taxes
B)   Decrease in government spending and taxes
C)   Increase in government spending and a decrease in taxes
D)   Decrease in government spending and an increase in taxesE) B) and C)
F) A) and D)

Question 12

More than half of the U.S. public debt is owed to Americans.

Accepted Answer

A) True 
 B)False

Question 13

If the cyclically-adjusted budget has a zero deficit but the actual budget has a $100 billion deficit, then that means that the government is pursuing an expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)   A $40 billion increase in taxes
B)   A $10 billion increase in taxes and a $30 billion cut in government spending
C)   A $20 billion increase in taxes and a $20 billion cut in government spending
D)   A $30 billion increase in taxes and a $10 billion cut in government spendingE) None of the above
F) A) and B)

Question 15

The last year when there was a surplus in the actual U.S. Federal budget was in:

Accepted Answer

A)   2001
B)   2002
C)   2003
D)   2004E) B) and D)
F) A) and B)

Question 16

The following is budget information for a hypothetical economy. All data are in billions of dollars.  Refer to the above table. In which year is there a budget surplus?

Accepted Answer

A)   Year 1
B)   Year 2
C)   Year 4
D)   Year 5E) B) and C)
F) A) and B)

Question 17

A major concern with the Social Security trust fund is that:

Accepted Answer

A)   Surpluses for Social Security are too large
B)   The Federal government buys too many government securities
C)   Costs for administering the fund are greater than the current revenue
D)   The fund will exhausted in a couple of decadesE) A) and D)
F) B) and C)

Question 18

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 taxesE) All of the above
F) C) and D)

Question 19

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 PolicyE) All of the above
F) A) and B)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 13: Fiscal Policy, Deficits, and Debt

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

Correct AnswerverifiedShow Answer

If the cyclically-adjusted budget has a zero deficit but the actual budget has a $100 billion deficit, then that means that the government is pursuing an expansionary fiscal policy.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume that if there was no crowding-out, an increase in government spending would increase GDP by $100 billion. If there had been partial crowding-out, however, then GDP would have:

Correct AnswerverifiedShow Answer

Built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.

Correct AnswerverifiedShow Answer

The American Recovery and Reinvestment Act of 2009 included mostly:

Correct AnswerverifiedShow Answer

The last year when there was a surplus in the actual U.S. Federal budget was in:

Correct AnswerverifiedShow Answer

Most of the U.S. public debt is owed to the nation's citizens and domestic institutions. This is one reason that the public debt:

Correct AnswerverifiedShow Answer

The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the crowding-out effect suggests that investment spending would:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the U.S. economy reached full employment in 2007, the cyclically-adjusted deficit that year was -1.3% of GDP. From this information, we know that the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the above table. In which year is there a budget surplus?

Correct AnswerverifiedShow Answer

The Social Security Program is designed to pay:

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

A given reduction in government spending will dampen demand-pull inflation by a greater amount when the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A major concern with the Social Security trust fund is that:

Correct AnswerverifiedShow Answer

More than half of the U.S. public debt is owed to Americans.

Correct AnswerverifiedShow Answer

The set of fiscal policies that would be most contractionary would be a(n) :

Correct AnswerverifiedShow Answer

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