Econ ch 9 questions
A major reason that the public debt cannot bankrupt the Federal government is because: A. The public debt is mostly held by foreigners B. The Federal government has the Social Security Trust Fund C. The public debt can be easily refinanced by issuing new bonds D. The Federal government can draw on its gold reserves
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An increase in the public debt and its subsequent repayment will tend to: A. Mildly reduce the income inequality in the U.S. B. Mildly increase the income inequality in the U.S. C. Have no impact on the income distribution in the U.S. D. Make the income distribution more equitable in the U.S.
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As of 2012, most of the U.S. Federal debt was owed to: A. Americans B. Foreign governments C. The Chinese people D. The Japanese people
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As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system: A. Increases crowding out in the economy B. Decreases real interest rates in the economy C. Offsets the timing problem for fiscal policy D. Serves as an automatic stabilizer for the economy
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Contractionary fiscal policy would tend to make a budget deficit become: A. Bigger B. Smaller C. A trade deficit D. A trade surplus
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In 2012, foreign ownership of the total public debt of the U.S. was about: A. 20% B. 33% C. 60% D. 75%
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In 2012, interest payments on the public debt, as a percentage of GDP, were about: A. 2.3 percent B. 23 percent C. 53 percent D. 13 percent
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The crowding-out effect tends to be stronger when the economy: A. Has a lot of excess productive capacity B. Is at, or close to, full employment C. Has a very small net exports or foreign sector D. Is a very open economy with a large foreign sector
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Which would tend to reduce the crowding-out effect that occurs when the Federal government increases its borrowing to finance a deficit? A. The economy is operating at full employment B. The economy is operating at less than full employment C. The expenditures fail to contribute to the development of human capital D. The deficit financing reduces the profit expectations of business firms
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Fiscal policy is enacted through changes in: A. Interest rates and the price level B. The supply of money and foreign exchange C. Unemployment and inflation D. Taxation and government spending
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Incurring an internal debt to finance a war like World War II does not pass the true cost of the war on to future generations because: A. The opportunity cost of wartime expenditures was borne by the generation that lived during the war B. The Federal government can shift expenditures from military goods to the production of other public goods C. The Federal government has the power to levy taxes to pay its debts D. Wartime inflation reduces the relative size of the public debt
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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: 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 government
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Of the U.S. Federal debt held by foreigners in 2012, China held roughly: A. 84% B. 67% C. 48% D. 22%
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One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy: A. Makes the actual budget a better reflection of the condition of the economy than the standardized budget B. Does not produce a cyclical deficit as discretionary policy does C. Is not subject to the timing problems of discretionary policy D. Has a greater multiplier effect than discretionary policy
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One of the potential consequences of the public debt is that it may: A. Make income distribution more equitable B. Increase the debt burden of foreign creditors C. Lead to additional future taxes that reduce economic incentives D. Decrease interest rates and increase investment spending
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One timing problem in using fiscal policy to counter a recession is the "administrative lag" that occurs between the: A. Start of the recession and the time it takes to recognize that the recession has started B. Start of a predicted recession and the actual start of the recession C. Time fiscal action is taken and the time that the action has its effect on the economy D. Time the need for the fiscal action is recognized and the time that the action is taken
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One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the: A. Start of the recession and the time it takes to recognize that the recession has started B. Start of a predicted recession and the actual start of the recession C. Time fiscal action is taken and the time that the action has its effect on the economy D. Time the need for the fiscal action is recognized and the time that the action is taken
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One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the: A. Start of the recession and the time it takes to recognize that the recession has started B. Start of a predicted recession and the actual start of the recession C. Time fiscal action is taken and the time that the action has its effect on the economy D. Time the need for the fiscal action is recognized and the time that the action is taken
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Proponents of the notion of a "political business cycle" suggest that: 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 policy-makers for political purposes and goals D. There is constant political trading among policy-makers that tends to make the economic policies of state and local governments procyclical
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State and local governments are limited in their ability to respond to recessions because of: A. Local politics and politicians B. Their desire to always run budget surpluses C. The lack of proper economic research and assistance D. Constitutional and other requirements to balance their budgets
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The American Recovery and Reinvestment Act of 2009 included mostly: 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
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The American Recovery and Reinvestment Act of 2009 is a clear example of: A. Nondiscretionary fiscal policy that made the cyclically-adjusted budget become more positive B. Nondiscretionary fiscal policy that made the cyclically-adjusted budget become more negative C. Discretionary fiscal policy that made the cyclically-adjusted budget become more positive D. Discretionary fiscal policy that made the cyclically-adjusted budget become more negative
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The Social Security Program is designed to pay: 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 workers
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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: 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 policy
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The built-in stabilizers in the economy tend to: A. Fully offset irregular swings in real GDP B. Magnify somewhat the irregular swings in real GDP C. Dampen the irregular swings in real GDP D. Overcompensate for the irregular swings in real GDP
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The crowding-out effect arises when: A. Government lends in the money market, thus decreasing interest rates B. Government borrows in the money market, thus decreasing interest rates C. Government lends in the money market, thus increasing interest rates D. Government borrows in the money market, thus causing an increase in interest rates
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The crowding-out effect suggests that: A. Increases in consumption are always at the expense of saving B. Increases in government spending will close a recessionary expenditure gap C. Increases in government spending may reduce private investment D. High taxes reduce both consumption and saving
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The crowding-out effect works through interest rates and it tends to: A. Increase the effectiveness of a tax increase B. Decrease the effectiveness of a tax increase C. Decrease the effectiveness of an increase in government spending D. Increase the effectiveness of an increase in government spending
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The cyclically-adjusted budget deficit in an economy is zero. If this economy goes into recession, then the actual government budget will be: A. Balanced B. In deficit C. In surplus D. Expanding
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The cyclically-adjusted budget estimates the Federal budget deficit or surplus if: A. The rate of inflation were zero B. The economy were at full employment C. The MPC were zero D. The government had a balanced budget
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The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a: A. Trade deficit B. Trade surplus C. Budget deficit D. Budget surplus
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The following are important problems associated with the public debt, except: A. Payments of interest on the debt lead to greater income inequality B. Interest payments on the debt tend to reduce economic incentives to work and invest C. Government borrowing to finance the debt may lead to too much private investment D. Payment of interest on the debt held by foreigners would send real resources abroad
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The goal of expansionary fiscal policy is to increase: A. The price level B. Aggregate supply C. Real GDP D. Unemployment
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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: A. Crowding-out lag B. Recognition lag C. Operational lag D. Administrative lag
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The more progressive the tax system, the: A. Less is the built-in stability for the economy B. Greater is the built-in stability for the economy C. Less is the effect of crowding-out on the economy D. Greater is the severity of business fluctuations on the economy
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The public debt is the: A. Amount of U.S. paper currency in circulation B. Ratio of all past deficits to all past surpluses C. Accumulation of all past deficits minus all past surpluses D. Difference between current government expenditures and current tax revenues
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The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n): A. Budget lag B. Recognition lag C. Operational lag D. Administrative lag
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The total amount of debt owed by the Federal government is represented by the total value of the outstanding: A. U.S. government securities B. Federal Reserve notes C. Bank loans and deposits D. Stocks and bonds
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The two reasons why bankruptcy is a false concern about the public debt are: A. Government spending and taxation B. Refinancing and taxation C. Investment and refinancing D. Saving and investment
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There is general agreement among economists that a proposed fiscal policy should be evaluated for its: A. Contribution to the purpose of "fine-tuning" the economy B. Contribution to the growth of exports and imports in the economy C. Potential positive and negative effects on long-run productivity growth D. Potential positive and negative effects on short-run business indebtedness
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Through the start of 2009, Social Security revenues exceeded payouts, and the excess inflow was used to buy: A. Public lands B. Gold certificates C. Foreign securities D. Treasury securities
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To track the public debt over time and understand its significance to the economy, it is best: A. Examined relative to budget surpluses B. Calculated relative to the money supply C. Measured relative to the gross domestic product D. To compare it to imports, exports, and the trade deficit
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Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues: A. Increase and transfer payments decrease B. Decrease and transfer payments increase C. And transfer payments both decrease D. And transfer payments both increase
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Which of the following is an important real consequence of the public debt of the United States? A. It will threaten to bankrupt the Federal government B. It discourages saving among the general public C. It decreases the inequality in the distribution of income in the U.S. D. Its consequent higher interest rates lead to fewer incentives to bear risk and innovate
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Which of the following nations had the highest public sector debt as a percentage of GDP in 2012? A. The U.S. B. Japan C. The U.K. D. Greece
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f there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement: A. Contractionary fiscal policy B. No change in fiscal policy C. Expansionary fiscal policy D. Countercyclical fiscal policy
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If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n): A. Supply-side fiscal policy B. Expansionary fiscal policy C. Contractionary fiscal policy D. Nondiscretionary fiscal policy
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If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n): A. Supply-side fiscal policy B. Expansionary fiscal policy C. Contractionary fiscal policy D. Nondiscretionary fiscal policy
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The intent of contractionary fiscal policy is to: A. Increase aggregate demand B. Decrease aggregate demand C. Increase aggregate supply D. Decrease aggregate supply
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The set of fiscal policies that would be most contractionary would be a(n): 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 taxes
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When changes in taxes and government spending occur in the economy without explicit action by Congress, such policy is called ______ fiscal policy: A. Cyclical B. Implicit C. Discretionary D. Nondiscretionary
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When the Federal government cuts taxes and increases spending to stimulate the economy during a period of recession, such actions are designed to be: A. Passive B. Automatic C. Countercyclical D. Nondiscretionary
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When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is: A. Active Monetary Policy B. Automatic Fiscal Policy C. Discretionary Fiscal Policy D. Active Federal Policy
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When the Federal government uses taxation and spending actions to stimulate the economy it is conducting: A. Fiscal policy B. Incomes policy C. Monetary policy D. Employment policy
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A Federal budget deficit exists when: A. Federal government assets are less than liabilities in a given year B. Federal government spending exceeds tax revenues in a given year C. Federal government spending is increasing in a given year D. Federal government taxation is decreasing in a given year
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A Federal budget deficit is financed by the: A. Government purchase of Treasury securities B. Government issuance or sale of Treasury securities C. Nation's exports D. Private sector's investment spending
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A budget surplus means that: A. Government expenditures are greater than revenues in a given year B. Government revenues are greater than expenditures in a given year C. A nation's exports are greater than its imports D. A nation's imports are greater than its exports
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A major concern with the Social Security trust fund is that: 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 decades
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A public debt which is owed to foreigners can be burdensome because: A. Foreign interest rates are persistently higher than domestic interest rates B. The payment of interest reduces the volume of goods and services available for domestic uses C. The payment of interest will conflict with a nation's foreign aid programs D. The payment of interest will necessarily have a deflationary effect on prices in the paying nation
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Actions by the Federal government that decrease the progressivity of the tax system: A. Decrease the amount of government spending B. Increase the effect of automatic stabilizers C. Decrease the effect of automatic stabilizers D. Increase the multiplier effect
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Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget rule that would require the Federal government to balance its budget during a recession would be: A. Expansionary and worsen the effects of the recession B. Contractionary and worsen the effects of the recession C. Contractionary and counter the effects of the recession D. Expansionary and counter the effects of the recession
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Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that: A. Reinforce changes in GDP B. Help offset changes in GDP C. Produce a cyclically-adjusted budget D. Produce a standardized budget
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Crowding out is a decrease in private investment caused by: A. Increased taxation by the government B. Increased borrowing by the government C. Increased consumer spending by households D. Increased exports to buyers in other nations
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Due to automatic stabilizers, when the nation's total income rises, government transfer spending: A. Increases and tax revenues decrease B. Decreases and tax revenues increase C. And tax revenues decrease D. And tax revenues increase
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How is the public debt calculated? A. By subtracting the government's total liabilities from its total assets B. By cumulating the annual government purchases over time C. By subtracting current government spending from current government tax revenues D. By cumulating the annual difference between tax revenues and government spending over the years
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If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be: A. Increased government spending or increased taxation, or a combination of the two actions B. Increased government spending or decreased taxation, or a combination of the two actions C. Increased government spending or increased taxation, but not a combination of the two actions D. Decreased government spending or decreased taxation, or a combination of the two actions
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If the economy is to have significant built-in stability, then when real GDP increases, the tax revenues should: A. Fall proportionately more than the change in GDP B. Fall proportionately less than the change in GDP C. Rise proportionately more than the change in GDP D. Rise proportionately less than the change in GDP
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If the government wishes to increase the level of real GDP, it might reduce: A. Taxes B. Transfer payments C. The size of the budget deficit D. Its purchases of goods and services
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In 2012, the public debt in the U.S. on a per capita basis was about: A. $100,000 B. $38,000 C. $75,000 D. $52,000
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Increased government spending for investments such as highways or harbors financed by increasing the public debt would most likely: A. Crowd out future public investment B. Reduce the economy's future productive capacity C. Complement private investment D. Crowd out private investment
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