question

The use of government taxes and spending to alter economic outcomes is known as

answer

Fiscal policy.

question

Which of the following represents the use of fiscal policy to achieve a fiscal stimulus?

answer

Greater government expenditure or lower taxes.

question

If full-employment income and equilibrium income are equal for a country, then a tax cut will result in

answer

Excess AD.

question

Which of the following is an appropriate fiscal policy prescription for the government to follow?

answer

Deficit reduction when there is excess AD.

question

Deficit spending results whenever the government

answer

Finances current expenditures that exceed current tax revenues.

question

Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint?

answer

. Less government expenditure and higher taxes.

question

With greater deficit spending, ceteris paribus,

answer

Any inflationary gap will become larger.

question

If full-employment output exceeds equilibrium output, greater deficit spending will result in

answer

Smaller recessionary gap.

question

With an increase in deficit spending, the

answer

Aggregate demand curve shifts to the right.

question

If the economy is in a recession,

answer

It is operating inside the production possibilities curve, and the opportunity cost of deficit spending is zero.

question

A budget surplus is

answer

An excess of government revenues over government expenditures in a given time period.

question

When there is excess aggregate demand, the appropriate fiscal policy would be for the government to

answer

Make budget surpluses larger.

question

In order to reduce the U.S. debt

answer

The government should spend less than it collects in tax revenues.

question

According to Keynes, an unbalanced budget is appropriate in all of the following situations except when

answer

The economy is at full employment.

question

Which of the following is an argument against balancing the federal budget?

answer

Doing so may prevent the government from pulling the economy out of recession.

question

The fiscal year

answer

Is the 12-month period used for federal government accounting purposes.

question

The fiscal year for the federal government begins on

answer

October 1.

question

The elements of the federal budget not determined by past legislative or executive commitments are

answer

. Discretionary fiscal spending.

question

Discretionary expenditures account for approximately

answer

One-fifth of the federal budget.

question

Much of each year's federal budget is considered \"uncontrollable\" because

answer

Most of the current revenues and expenditures are the result of decisions made in prior years.

question

Uncontrollable government spending includes

answer

Interest payments on the national debt.

question

In order to maintain a balanced budget every year, during a recession the government would have to

answer

Decrease spending or increase taxes or both.

question

Fiscal restraint is

answer

Tax hikes and/or spending cuts intended to reduce aggregate demand.

question

Which of the following is not an automatic stabilizer?

answer

Defense spending.

question

Automatic stabilizers tend to stabilize the level of economic activity because they

answer

Increase spending during recessions and reduce spending during inflationary periods.

question

Automatic stabilizers

answer

Help to moderate the extremes of the business cycle.

question

Spending for unemployment compensation and welfare benefits increase automatically

answer

When the economy goes into recession.

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Which of the following is an automatic stabilizer that reduces tax receipts during a recession?

answer

Corporate and individual income taxes.

question

All of the following contribute to greater deficits when unemployment rises and reduce the deficit during an inflationary gap except for

answer

U.S. exports.

question

A progressive income tax system is particularly effective as an automatic stabilizer because

answer

In a booming economy, taxpayers move into higher tax brackets, which restrains their spending.

question

Which of the following is a possible effect of automatic stabilizers on the federal budget?

answer

decrease in the deficit during an expansion.

question

An increase in unemployment, ceteris paribus,

answer

Reduces a budget surplus.

question

Which of the following is most likely to increase a federal budget surplus?

answer

A higher inflation rate and a lower unemployment rate.

question

Which of the following is most likely to reduce a federal budget surplus?

answer

A recession.

question

Which of the following might encourage the government to let inflation rates rise?

answer

A higher inflation rate reduces the budget deficit.

question

For the convenience of analyzing the part of the deficit that is sensitive to fiscal policy, the actual deficit is divided into which of the following components?

answer

Structural and cyclical deficits.

question

In contrast to the structural deficit, the cyclical deficit reflects

answer

Fluctuations in economic activity.

question

Which of the following results from a change in the business cycle, ceteris paribus?

answer

Cyclical unemployment.

question

If the cyclical deficit shrank by $60 billion while the structural deficit increased by $35 billion, the total deficit

answer

Fell by $25 billion.

question

If the budget deficit for each year is held to a constant nominal value during constant inflationary times, then the inflation-corrected or real value of the total debt would

answer

Rise at a decreasing rate.

question

The structural deficit represents

answer

Federal revenues minus federal expenditures at full employment under current fiscal policy.

question

If the structural deficit is zero,

answer

At full employment, the budget is balanced.

question

Suppose the economy is at a full-employment GDP of $1 trillion and the tax revenue received by the federal government is always one-fifth of GDP. If planned government expenditure is $300 billion, the structural

answer

Deficit is $100 billion.

question

If the total budget deficit is $200 billion and the deficit at full employment is $120 billion, then the

answer

Cyclical deficit is $80 billion.

question

The largest percentage of U.S. national debt to GDP occurred during

answer

World War II.

question

Which of the following is the best indication that the government is pursuing restrictive fiscal policy?

answer

The structural deficit decreases.

question

A decrease in private sector borrowing and spending caused by increased government borrowing is

answer

. Crowding out.

question

Crowding out is most likely to occur when the federal government

answer

Runs a deficit and sells bonds to make up the difference.

question

Increased government purchases crowd out private purchases whenever the economy is

answer

On the production possibilities curve.

question

Which of the following is not true when the economy is fully employed and government bonds are sold to finance greater government spending?

answer

The government is running a cyclical deficit.

question

The opportunity cost of the debt is

answer

Less of an issue if the economy is below full employment since crowding out is less likely to occur.

question

An opportunity cost that occurs because of increased government spending is

answer

The crowding out of private sector output.

question

The government can use a budget surplus to do all of the following except

answer

Decrease the money supply.

question

If there was a federal budget surplus and the government decided to either increase spending or decrease taxes

answer

The budget surplus would get smaller.

question

An increase in private sector borrowing and spending caused by decreased government borrowing is known as

answer

Crowding in.

question

Which of the following would occur if the federal government decided to use a budget surplus to reduce the existing debt?

answer

Crowding in and private sector output would increase.

question

Crowding in is the result of

answer

Falling interest rates.

question

The national debt is

answer

The accumulation of all annual deficit and surplus flows.

question

The U.S. government incurred a national debt for the first time during

answer

The Revolutionary War.

question

The debt would cease to grow if

answer

The federal government balanced its budget.

question

The national debt

answer

Equals the dollar amount of outstanding U.S. Treasury bonds.

question

The fiscal agent of the U.S. government is the

answer

U.S. Treasury.

question

In the 20th century, the ratio of the U.S. debt to GDP has

answer

Risen in response to wars.

question

A measure of the burden of continual deficit financing over time is the ratio of

answer

The debt to the GDP.

question

The national debt increased by nearly $2 trillion in the 1980s because of all of the following except

answer

College financing.

question

Debt accumulation by the U.S. government in the 1980s

answer

Exceeded the debt the country had accumulated over the preceding 200 years.

question

Which of the following contributed to the increase in the national debt during the 1990s?

answer

The bailout of failed savings and loan associations.

question

Policies designed to pay off the national debt will result in:

answer

A smaller level of aggregate demand

question

The U.S. federal debt that accumulated between 1970 and 2010

answer

Is an asset and a liability for the U.S. economy.

question

An obligation to make future payment is

answer

. A liability.

question

When the Federal Reserve System buys bonds in the open market, the national debt

answer

Is not affected.

question

Internal ownership of the national debt occurs when U.S. Treasury bonds are purchased b all of the following except

answer

Foreign countries that we trade with.

question

Federal agencies hold roughly _____ percent of all outstanding Treasury bonds.

answer

16

question

Which of the following owns the largest portion of the U.S. national debt?

answer

The federal government.

question

The largest single holder of the U.S. national debt after the U.S. government is

answer

The foreign sector.

question

The U.S. private sector holds about _____ percent of outstanding U.S. Treasury bonds.

answer

24

question

U.S. Treasury bonds owned by U.S. households, institutions, and government entities are referred to as

answer

Internal debt.

question

Foreign households and institutions hold approximately _____ percent of the U.S. national debt.

answer

31

question

When the U.S. Treasury issues new bonds to replace bonds that have matured, it is engaging in

answer

Debt refinancing.

question

Interest payments on the national debt

answer

Are a redistribution of income from taxpayers to bondholders.

question

The \"real burden\" of the debt is directly related to

answer

The idea of opportunity cost.

question

The cost of servicing the debt may increase if

answer

Interest rates rise.

question

Debt service

answer

. Refers to the annual interest payments on the debt.

question

Selling bonds to finance new government debt leads to an opportunity cost that is

answer

The same as financing government debt with taxes. D. Dependent on who buys the bonds.

question

Deficit financing tends to change the mix of output in the direction of more

answer

Public sector goods.

question

The burden of the internal portion of the debt is incurred

answer

When the debt-financed activity takes place.

question

If debt-financed less productive government spending crowds out more productive private investment, future generations will bear

answer

. Some of the burden of the debt due to lower productive capacity.

question

If deficit spending does not contribute to public investment and crowds out private investment, then

answer

The rate of economic growth will decline, ceteris paribus.

question

Which of the following statements about the U.S. national debt is not correct?

answer

The primary economic costs of the debt are being passed on to future generations.

question

External debt of the United States refers to

answer

U.S. government debt held by foreigners.

question

At the time it occurs, external financing of the debt allows the economy to

answer

Consume beyond the production possibilities curve.

question

The burden of the debt is passed on to future generations when the debt is held by

answer

Foreign households.

question

A deficit ceiling directly limits

answer

The rate at which government spending can exceed government revenue.

question

The Gramm-Rudman-Hollings Act of 1985 created a

answer

. Deficit ceiling.

question

Which of the following is not an explanation of why the Gramm-Rudman-Hollings Act proved inadequate in reducing the deficit?

answer

Congress controls only the cyclical portion of government spending.

question

If Congress failed to keep the deficit below the ceiling, then the Gramm-Rudman-Hollings Act required

answer

Automatic spending cuts.

question

Debt ceilings are designed to

answer

Reduce the deficit.

question

To pay back Social Security loans, Congress could do all of the following except

answer

Sell fewer U.S. Treasury bonds.

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