Question 1

As measured by the cyclically adjusted budget,the U.S.government engaged in a contractionary fiscal policy in 2005 and 2006.

Accepted Answer

A) True 
 B)False

Question 2

If the MPC in an economy is .8,government could shift the aggregate demand curve rightward by $100 billion by:

Accepted Answer

A)   increasing government spending by $25 billion.
B)   increasing government spending by $80 billion.
C)   decreasing taxes by $25 billion.
D)   decreasing taxes by $100 billion.E) All of the above
F) A) and D)

Question 3

Suppose the price level is fixed,the MPC is .5,and the GDP gap is a negative $100 billion.To achieve full-employment output (exactly) ,government should:

Accepted Answer

A)   increase government expenditures by $100 billion.
B)   increase government expenditures by $50 billion.
C)   reduce taxes by $50 billion.
D)   reduce taxes by $200 billion.E) A) and C)
F) None of the above

Question 4

If the MPS in an economy is .1,government could shift the aggregate demand curve rightward by $40 billion by:

Accepted Answer

A)   increasing government spending by $4 billion.
B)   increasing government spending by $40 billion.
C)   decreasing taxes by $4 billion.
D)   increasing taxes by $4 billion.E) A) and B)
F) A) and D)

Question 5

Discretionary fiscal policy will stabilize the economy most when:

Accepted Answer

A)   deficits are incurred during recessions and surpluses during inflations.
B)   the budget is balanced each year.
C)   deficits are incurred during inflations and surpluses during recessions.
D)   budget surpluses are continuously incurred.E) All of the above
F) A) and D)

Question 6

The effect of a government surplus on the equilibrium level of GDP is substantially the same as:

Accepted Answer

A)   a decrease in imports.
B)   an increase in saving.
C)   an increase in consumption.
D)   an increase in investment.E) A) and C)
F) B) and C)

Question 7

If the MPC in the economy is .75,government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

Accepted Answer

A) True 
 B)False

Question 8

Suppose the price level is fixed,the MPC is .8,and the GDP gap is a negative $200 billion.To achieve full-employment output (exactly) ,government should:

Accepted Answer

A)   increase government expenditures by $200 billion.
B)   reduce taxes by $200 billion.
C)   increase government expenditures by $40 billion.
D)   reduce taxes by $160 billion.E) A) and B)
F) A) and C)

Question 9

The portion of the public debt held outside federal agencies and the Federal Reserve is:

Accepted Answer

A)   larger than the portion held by federal agencies and the Federal Reserve.
B)   smaller than the portion held by federal agencies and the Federal Reserve.
C)   equally split between U.S.and foreign lenders.
D)   all held by foreign lenders.E) A) and B)
F) A) and C)

Question 10

In 2012,about ____ percent of the U.S.public debt was held by the federal government and Federal Reserve.

Accepted Answer

A)   33
B)   57
C)   62
D)   40E) None of the above
F) B) and D)

Question 11

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.E) B) and C)
F) A) and C)

Question 12

The crowding-out effect of expansionary fiscal policy suggests that:

Accepted Answer

A)   tax increases are paid primarily out of saving and therefore are not an effective fiscal device.
B)   increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
C)   it is very difficult to have excessive aggregate spending in the U.S.economy.
D)   consumer and investment spending always vary inversely.E) B) and D)
F) A) and B)

Question 13

Increases in the federal budget deficit from 2007 to 2009 were caused:

Accepted Answer

A)   exclusively by the loss of tax revenue due to recession.
B)   exclusively by expansionary fiscal policy,as shown through growth in the cyclically adjusted deficit.
C)   primarily by a combination of recession and expansionary fiscal policy.
D)   primarily by increased outlays to a rapidly growing number of Social Security recipients.E) C) and D)
F) None of the above

Question 14

The combined cost of Social Security and Medicare programs was what percent of U.S.GDP in 2011?

Accepted Answer

A)   8.5.
B)   12.0.
C)   17.2.
D)   13.0.E) C) and D)
F) All of the above

Question 15

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.E) A) and B)
F) B) and C)

Question 16

The most likely way the public debt burdens future generations,if at all,is by:

Accepted Answer

A)   reducing the current level of investment.
B)   causing future unemployment.
C)   causing deflation.
D)   reducing real interest rates.E) A) and C)
F) A) and B)

Question 17

Suppose the government cuts taxes to keep the economy's cyclically adjusted budget in balance when the economy is expanding.The government is engaging in a(n) :

Accepted Answer

A)   contractionary fiscal policy.
B)   expansionary fiscal policy.
C)   low-interest-rate policy.
D)   neutral fiscal policy.E) B) and D)
F) None of the above

Question 18

An increase in the cyclical deficits will automatically increase the cyclically adjusted budget deficit.

Accepted Answer

A) True 
 B)False

Question 19

The cyclically adjusted budget deficit for the United States:

Accepted Answer

A)   rose to -7.1 percent of potential GDP in 2009 but has since declined.
B)   was zero in 2009,but the cyclical deficit created by the recession was -7.1 percent of potential GDP.
C)   changed to a surplus in 2009.
D)   rose to -10.1 percent of potential GDP in 2009 but has since declined.E) C) and D)
F) B) and D)

Question 20

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.E) B) and C)
F) A) and B)

Exam 32: The Balance of Payments, Exchange Rates, and Trade Deficits

The cyclically adjusted budget deficit for the United States:

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Increases in the federal budget deficit from 2007 to 2009 were caused:

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The effect of a government surplus on the equilibrium level of GDP is substantially the same as:

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In 2012,about ____ percent of the U.S.public debt was held by the federal government and Federal Reserve.

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An increase in the cyclical deficits will automatically increase the cyclically adjusted budget deficit.

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If the MPS in an economy is .1,government could shift the aggregate demand curve rightward by $40 billion by:

Correct AnswerverifiedShow Answer

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

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Suppose the government cuts taxes to keep the economy's cyclically adjusted budget in balance when the economy is expanding.The government is engaging in a(n) :

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Suppose the price level is fixed,the MPC is .8,and the GDP gap is a negative $200 billion.To achieve full-employment output (exactly) ,government should:

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

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The crowding-out effect of expansionary fiscal policy suggests that:

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The portion of the public debt held outside federal agencies and the Federal Reserve is:

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If the MPC in the economy is .75,government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

Correct AnswerverifiedShow Answer

Discretionary fiscal policy will stabilize the economy most when:

Correct AnswerverifiedShow Answer

As measured by the cyclically adjusted budget,the U.S.government engaged in a contractionary fiscal policy in 2005 and 2006.

Correct AnswerverifiedShow Answer

If the MPC in an economy is .8,government could shift the aggregate demand curve rightward by $100 billion by:

Correct AnswerverifiedShow Answer

The most likely way the public debt burdens future generations,if at all,is by:

Correct AnswerverifiedShow Answer

Fiscal policy refers to the:

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The combined cost of Social Security and Medicare programs was what percent of U.S.GDP in 2011?

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Suppose the price level is fixed,the MPC is .5,and the GDP gap is a negative $100 billion.To achieve full-employment output (exactly) ,government should:

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