macro ch 13 quiz

State and local governments are limited in their ability to respond to recessions because of:

D. Constitutional and other requirements to balance their budgets

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

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

In Year 1, the actual budget deficit was $200 billion and the cyclically-adjusted deficit was $150 billion. In Year 2, the actual budget deficit was $225 billion and the cyclically-adjusted deficit was $175 billion. It can be concluded that fiscal policy from Year 1 to Year 2 became more:

D. Expansionary

If you are told that the government had an actual budget deficit of $50 billion, then you would:

D. Not be able to determine the direction of fiscal policy from the information given

Which of the following nations had the highest public sector debt as a percentage of GDP in 2012?

*not: A. The U.S. *not: C. The U.K.

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

A. A $40 billion increase in government spending

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:

B. $20 billion in investment

The crowding-out effect from government borrowing to finance the public debt is reduced when:

C. Public investment complements private investment

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

C. The public debt can be easily refinanced by issuing new bonds

Refer to the data in the table above. In which year was the cyclical deficit the largest?

D. 2004

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:

D. Administrative lag

In the graph above, tax revenues vary:

A. Directly with the level of GDP

The economic burden of World War II for the United States was primarily:

B. Borne by the persons who lived during the war period

The intent of contractionary fiscal policy is to:

B. Decrease aggregate demand

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):

B. Expansionary fiscal policy

A budget surplus means that:

B. Government revenues are greater than expenditures in a given year

The more progressive the tax system, the:

B. Greater is the built-in stability for the economy

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:

B. Increased by less than $100 billion

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:

B. Increased government spending or decreased taxation, or a combination of the two actions

Refer to the above graph. The economy is initially at point 1. Which of the following events would cause a shift that would help offset the crowding-out effect? An increase in:

B. Profit expectations resulting from an increase in government spending

The so-called "negative taxes" are better known as:

B. Transfer payments

Refer to the above table. In which year is there a balanced budget?

B. Year 2

An economy is experiencing a high rate of inflation. The government wants to reduce GDP (income) by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective?

C. $12 billion

The following are important problems associated with the public debt, except:

C. Government borrowing to finance the debt may lead to too much private investment

Refer to the graph above. Assume that the economy initially has a price level of P1 and output level Q1. If the government implements expansionary fiscal policy, and the full multiplier effect was felt, it would bring the economy to:

D. P1 and Q3