MACRO: quiz 8 version 1 & 2

Fiscal policy refers to the: A) manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. B) manipulation of 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.

A

If 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

A

Most of the 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

B

The amount by which government expenditures exceed revenues during a particular year is the: A) public debt. B) budget deficit. C) full-employment. D) GDP gap.

B

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

B

The cyclically-adjusted budget measures the Federal budget deficit or surplus if: A) The rate of inflation was zero B) The economy was at full employment C) The MPC was zero D) The government had a balanced budget

B

(Last Word) In 1960 the ratio of workers to Social Security and Medicare beneficiaries was ______; by 2040 it is projected to be _________. A) 10:1; 3:1 B) 3:1; 2:1 C) 5:1; 2:1 D) 2:1; 3:1

C

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

C

The crowding-out effect from government borrowing to finance the public debt is reduced when: A) The economy is experiencing a period of high inflation B) The economy is operating at the full-employment level of output C) Public investment complements private investment D) Public investment substitutes for private investment

C

The cyclically-adjusted budget tells us: A) that in a full-employment economy the Federal budget should be in balance. B) that tax revenues should vary inversely with GDP. C) what the size of the Federal budget deficit or surplus would be if the economy was at full employment. D) the actual budget deficit or surplus realized in any given year.

C

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? A) A Congressional proposal to incur a Federal surplus to be used for the retirement of public debt. B) Reductions in agricultural subsidies and veterans' benefits. C) Postponement of a highway construction program. D) Reductions in Federal tax rates on personal and corporate income.

D

Suppose the Federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have: A) increased by $50 billion. B) increased by $150 billion. C) decreased by $200 billion. D) decreased by $150 billion.

D

The American Recovery and Reinvestment Act of 2009 was implemented primarily to: A) reduce inflationary pressure caused by oil price increases. B) curb the overspending by households that contributed to the Great Recession. C) bring the Federal budget back into balance. D) stimulate aggregate demand and employment.

D

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the: A) Crowding-out lag B) Recognition lag C) Operational lag D) Administrative lag

D

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

D

When the economy is at full employment: A) one cannot generalize in comparing the actual and the cyclically-adjusted budgets. B) the cyclically-adjusted budget will show a surplus and the actual budget will show a deficit. C) the actual budget will show a surplus and the cyclically-adjusted budget will show a deficit. D) the actual and the cyclically-adjusted budgets will be equal.

D

An economist who favors smaller government would recommend: A) tax cuts during recession and reductions in government spending during inflation. B) tax increases during recession and tax cuts during inflation. C) tax cuts during recession and tax increases during inflation. D) increases in government spending during recession and tax increases during inflation.

A

The Federal budget deficit is calculated each year by: A) Subtracting government spending from government revenues B) Subtracting consumption and investment from government spending C) Adding up consumption, investment, government purchases, and net exports D) Adding up the difference between government revenues and spending over the years of the nation's existence

A

The crowding-out effect is: A) strongest when the economy is at full employment. B) strongest when the economy is in a deep recession. C) weakest when there is demand-pull inflation. D) equally strong, regardless of the state of the macroeconomy.

A

The crowding-out effect of expansionary fiscal policy suggests that: A) government spending increases at the expense of private investment. B) imports replace domestic production. C) private investment increases at the expense of government spending. D) saving increases at the expense of investment.

A

The largest proportion of the U.S. public debt is held by: A) the U.S. public (individuals, businesses, financial institutions, etc.) and state and local governments. B) foreign individuals and institutions. C) the Federal Reserve System. D) U.S. government agencies.

A

Which of the following statements is correct? A) Built-in stability only partially offsets fluctuations in economic activity. B) Built-in stability works in halting inflation, but it cannot alleviate unemployment. C) Built-in stability can be relied on to eliminate completely any fluctuation in economic activity. D) Built-in stability has eliminated the need for discretionary fiscal policy.

A

(Last Word) Which of the following would not help to relieve the Social Security and Medicare shortfalls? A) Extending the Social Security tax to a higher level of earnings. B) Restricting immigration of skilled working-age adults. C) Increasing the retirement age for collecting Social Security and Medicare benefits. D) Reducing Social Security and Medicare benefits for wealthier individuals.

B

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

B

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.

B

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: A) Increased by more than $100 billion B) Increased by less than $100 billion C) Increased by $100 billion D) Not increased

B

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

B

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

B

Which of the following did not contribute directly to the Great Recession? A) Crisis in the mortgage lending market. B) Bursting of the Dot.Com stock market bubble. C) Freezing credit markets. D) Pessimism originating from financial market turmoil.

B

Which of the following statements is correct? A) The cyclically-adjusted budget and the actual budget differ because the latter does not take government transfer payments into account. B) The cyclically-adjusted budget is less likely to show a deficit than is the actual budget. C) The cyclically-adjusted budget and the actual budget will show the same size deficit or surplus in any given fiscal year. D) The cyclically-adjusted budget is more likely to show a deficit than is the actual budget.

B

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

C