Module 32 practice quiz

The largest debt-GDP ratio in recent U.S. economic history occurred:

during World War II.

If legislation were introduced to require the budget to be balanced at all times:

fiscal policy could not operate as an automatic stabilizer of the business cycle.

If the average retirement age decreases:

implicit liabilities will increase

Social Security spending is projected to

increase because of the impact of the baby boom.

Which fiscal policy would make a budget surplus smaller or a budget deficit larger?

increase in government purchases of goods and services

The budget deficit (as a percentage of GDP) ___________ when the economy goes into recession and___________when the economy expands.

increases; decreases

When a government decides to spend more than it collects in tax revenue, then:

it usually borrows the necessary funds

The cyclically adjusted budget deficit fluctuates _______________ the actual budget deficit, because large budget deficits tend to occur when the economy has a large ___________ gap.

less than; recessionary

The national debt _______ in years in which the federal government incurs a _______.

rises; deficit

Holding everything else constant, the government's budget balance:

tends to increase during an expansion.

When the unemployment rate increases, the budget:

tends to move into deficit.

A requirement to have an annually balanced federal budget would mean

that the role of taxes and transfers as automatic stabilizers would be undermined.

Which statement is TRUE?

An increase in government spending will have a greater effect on aggregate demand when the marginal propensity to consume is greater.

Which of the following is NOT a reason to be concerned with persistent budget deficits?

Government borrowing crowds in private investment spending, increasing the level of investment spending and raising GDP.

The largest implicit liability that the federal government incurs is for:

Medicare and Medicaid.

Which of the following statements does NOT describe the debt-GDP ratio?

The debt-GDP ratio provides an estimate of what the budget balance would be if real GDP were exactly equal to potential output.

Which of the following (all else being equal) will increase the budget deficit?

a decrease in taxes

The implicit liabilities of the U.S. government:

cannot continually be honored as they are designed, given demographic trends.

A(n) ___________ is the difference between the amount a government spends and the amount it receives in taxes over a given period.

deficit

Most economists believe that:

deficits should be run when the economy is bad.

The government budget deficit is most likely to rise when

the unemployment rate rises.