question

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

answer

True.

question

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

answer

A $10 billion increase in taxes and a $30 billion cut in government spending

question

Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD3 describes the current situation, appropriate fiscal policy would be to:

answer

increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility.

question

Discretionary fiscal policy is often initiated on the advice of the:

answer

Council of Economic Advisers

question

Other things equal, an increase of Treasury bonds from $100 billion to $120 billion in the economy would:

answer

increase the public debt from $460 billion to $480 billion.

question

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

answer

True.

question

The so-called crowding-out effect refers to government spending crowding out private investment spending.

answer

True.

question

The United States has experienced both budget surpluses and deficits since 2000.

answer

True.

question

Refer to the diagram. Discretionary fiscal policy designed to slow the economy is illustrated by:

answer

The shift of the curve from T2 to T1.

question

When current tax revenues exceed current government expenditures and the economy is achieving full employment:

answer

the cyclically adjusted budget has a surplus.

question

(Last Word) In 1960 the ratio of workers to Social Security and Medicare beneficiaries was ______; by 2040 it is projected to be _________.

answer

5:1; 2:1

question

Refer to the data. The 10 percent proportional tax on income would cause:

answer

both consumption and saving to increase by smaller and smaller absolute amounts as GDP rises

question

The American Recovery and Reinvestment Act of 2009 is a clear example of:

answer

Discretionary fiscal policy that made the cyclically-adjusted budget become more negative

question

Which one of the following might offset a crowding-out effect of financing a large public debt?

answer

An increase in public investment.

question

It is possible for an increase in government spending to encourage, instead of crowding out, private investment.

answer

True.

question

The political business cycle refers to the possibility that:

answer

politicians will manipulate the economy to enhance their chances of being reelected.

question

Refer to the diagram. The equilibrium level of GDP is:

answer

Y4

question

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

answer

Fiscal Policy

question

Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD2 describes the current situation, appropriate fiscal policy would be to:

answer

do nothing since the economy appears to be achieving full-employment real output.

question

As of 2012, more than half of the total debt of the U.S. government was owed to foreigners.

answer

False.

question

According to Congressional Budget Office (CBO) projections:

answer

budget deficits are expected to remain large for the next several years.

question

The American Recovery and Reinvestment Act of 2009 was implemented primarily to:

answer

stimulate aggregate demand and employment.

question

The average tax rate required to service the public debt is roughly measured by:

answer

interest on the debt as a percentage of the GDP.

question

An economist who favors smaller government would recommend:

answer

tax cuts during recession and reductions in government spending during inflation.

question

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

answer

increasing government spending by $4 billion.

question

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

answer

False

question

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

answer

The public debt can be easily refinanced by issuing new bonds

question

If the government wants to reduce unemployment using fiscal policy, it may do so by increasing government spending.

answer

True

question

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:

answer

increase government expenditures by $50 billion.

question

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. Refer to the information. The operational lag of fiscal policy is reflected in event(s):

answer

5.

question

The concept of a "political business cycle" implies a misuse of fiscal policy making it a source of economic instability.

answer

True

question

Refer to the data. A 10 percent proportional tax on income would:

answer

reduce the size of the multiplier and make the economy more stable.

question

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.

answer

False.

question

Refer to the data in the table above. The direction of fiscal policy became more contractionary from:

answer

2003 to 2004

question

The U.S. public debt:

answer

consists of the historical accumulation of all past federal deficits and surpluses.

question

Contractionary fiscal policy is so named because it:

answer

is aimed at reducing aggregate demand and thus achieving price stability

question

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the:

answer

Administrative lag

question

Which of the following fiscal policy actions is most likely to increase aggregate supply?

answer

A reduction in interest rates that encourages consumers to purchase more durable goods.

question

Which of the following fiscal policy actions is most likely to increase aggregate supply?

answer

An increase in government spending on infrastructure that increases private sector productivity.

question

A contractionary fiscal policy shifts the aggregate demand curve leftward.

answer

True

question

The goal of expansionary fiscal policy is to increase:

answer

Real GDP

question

Refer to the table for a fictional economy. The changes in the budget conditions between 2000 and 2001 best reflect:

answer

an expansion of real GDP and an automatic increase in tax revenues.

question

Expansionary fiscal policy will tend to reduce the budget deficit.

answer

False

question

An increase in the public debt and its subsequent repayment will tend to:

answer

Mildly increase the income inequality in the U.S.

question

The federal budget deficit is found by:

answer

subtracting government tax revenues from government spending in a particular year.

question

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

answer

Treasury Securities

question

The crowding-out effect of the public debt may be dampened if the investment-demand curve is shifting to the right.

answer

True

question

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

answer

False

question

The crowding-out effect tends to be stronger when the economy:

answer

Is at, or close to, full employment

question

Refer to the above graph. If the economy was initially in equilibrium at point 3 and a government deficit makes interest rates increase by 4 percentage points, then the crowding-out effect would be a reduction of:

answer

$20 billion in investment

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