econ exam 2 ch. 13

Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions (2015)? 26 percent 71 percent 41 percent 34 percent

34 percent

The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. The public debt declined in year 3. 6. 5. 4.

6.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy, tax revenues and government spending both vary inversely with GDP. tax revenues vary directly with GDP, but government spending is independent of GDP. government spending varies directly with GDP, but tax revenues are independent of GDP. tax revenues and government spending both vary directly with GDP.

tax revenues vary directly with GDP, but government spending is independent of GDP.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400, there will be a budget deficit. there will be a budget surplus. the budget will be balanced. the macroeconomy will necessarily be in equilibrium.

the budget will be balanced.

To say that "the U.S. public debt is mostly held internally" is to say that the bulk of the public debt is owned by U.S. citizens and institutions. only interest payments on the public debt are an economic burden. the public debt is equal to the land and building assets owned by the federal government. official figures understate the size of the public debt.

the bulk of the public debt is owned by U.S. citizens and institutions.

The public debt is the amount of money that the federal government owes to holders of U.S. securities. the federal government owes to taxpayers. Americans owe to foreigners. state and local governments owe to the federal government.

the federal government owes to holders of U.S. securities.

In 2015, the U.S. public debt was about $5.3 trillion. $16.4 trillion. $11.9 trillion. $18.2 trillion.

$18.2 trillion.

The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's public debt is $3,540 billion. $275 billion. $230 billion. $100 billion.

$275 billion.

The public debt for the economy is $580 billion. $540 billion. $400 billion. $460 billion.

$460 billion

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The administrative lag of fiscal policy is reflected in events 1 and 2. 2 and 3. 4 and 5. 3 and 4.

3 and 4

The amount by which government expenditures exceed revenues during a particular year is the full employment. public debt. GDP gap. budget deficit.

budget deficit.

Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at AD2. AD3. AD1. AD0.

AD3.

The group of three economists appointed by the president to provide fiscal policy recommendations is the Federal Reserve Board of Governors. Joint Economic Committee. Bureau of Economic Analysis. Council of Economic Advisers.

Council of Economic Advisers.

Which of the following best describes the built-in stabilizers as they function in the United States? Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP. The size of the multiplier varies inversely with the level of GDP. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Which of the following best describes the idea of a political business cycle? Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle. Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. Fiscal policy will result in alternating budget deficits and surpluses.

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

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 congressional proposal to incur a federal surplus to be used for the retirement of public debt. Reductions in agricultural subsidies and veterans' benefits. Reductions in federal tax rates on personal and corporate income. Postponement of a highway construction program.

Reductions in federal tax rates on personal and corporate income.

The public debt is held as U.S. securities, corporate bonds, and common stock. Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds. U.S. gold certificates. Federal Reserve Notes.

Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD3, it is experiencing cost-push inflation. a positive GDP gap. a recession. a negative GDP gap.

a positive GDP gap.

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a budget surplus. trade deficit. trade surplus. budget deficit.

budget deficit.

Which of the following did not contribute directly to the Great Recession? crisis in the mortgage lending market freezing credit markets pessimism originating from financial market turmoil bursting of the dot-com stock market bubble

bursting of the dot-com stock market bubble

Countercyclical discretionary fiscal policy calls for surpluses during recessions and deficits during periods of demand-pull inflation. deficits during both recessions and periods of demand-pull inflation. deficits during recessions and surpluses during periods of demand-pull inflation. surpluses during both recessions and periods of demand-pull inflation.

deficits during recessions and surpluses during periods of demand-pull inflation.

Fiscal policy refers to the altering of the interest rate to change aggregate demand. deliberate changes in government spending and taxes to achieve greater equality in the distribution of income. fact that equal increases in government spending and taxation will be contractionary. deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

Refer to the diagram, in which Qf is the full-employment output. If the economy's present aggregate demand curve is AD2, the economy is achieving its maximum possible output. the most appropriate fiscal policy is a reduction of government expenditures or an increase of taxes. the most appropriate fiscal policy is an increase of government expenditures or a reduction of taxes. government should undertake neither an expansionary nor a contractionary fiscal policy

government should undertake neither an expansionary nor a contractionary fiscal policy.

Which combination of fiscal policy actions would most likely offset each other? increase both taxes and government spending increase taxes but make no change in government spending decrease government spending but make no change in taxes decrease taxes and increase government spending

increase both taxes and government spending

The crowding-out effect of expansionary fiscal policy suggests that it is very difficult to have excessive aggregate spending in the U.S. economy. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. consumer and investment spending always vary inversely. tax increases are paid primarily out of saving and therefore are not an effective fiscal device.

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

Discretionary fiscal policy refers to the authority that the president has to change personal income tax rates. any change in government spending or taxes that destabilizes the economy. intentional changes in taxes and government expenditures made by Congress to stabilize the economy. the changes in taxes and transfers that occur as GDP changes.

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

Expansionary fiscal policy is so named because it involves an expansion of the nation's money supply. necessarily expands the size of government. is aimed at achieving greater price stability. is designed to expand real GDP

is designed to expand real GDP.

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD3, it would be appropriate for the government to increase government expenditures or reduce taxes. reduce government expenditures and taxes by equal-size amounts. reduce government expenditures or increase taxes. reduce unemployment compensation benefits.

reduce government expenditures or increase taxes.

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the government should discourage private investment by increasing corporate income taxes. decrease government expenditures. reduce tax rates and/or increase government spending. encourage personal saving by increasing the interest rate on government bonds.

reduce tax rates and/or increase government spending.

Recessions have contributed to the public debt by increasing the international value of the dollar. increasing national saving. reducing national income and therefore tax revenues. increasing real interest rates.

reducing national income and therefore tax revenues.

Refer to the figure. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation? shift aggregate demand by increasing government spending shift aggregate supply by increasing taxes shift aggregate demand by decreasing taxes shift aggregate demand by increasing taxes

shift aggregate demand by increasing taxes

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

strongest when the economy is at full employment

An economist who favors smaller government would recommend tax cuts during recession and tax increases during inflation. tax increases during recession and tax cuts during inflation. increases in government spending during recession and tax increases during inflation. tax cuts during recession and reductions in government spending during inflation.

tax cuts during recession and reductions in government spending during inflation.

Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with a major recession. severe demand-pull inflation. an expansionary fiscal policy. a contractionary fiscal policy.

an expansionary fiscal policy.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit at any level of GDP below $400. at any level of GDP above $400. at all levels of GDP. only when GDP is stable.

at any level of GDP below $400.

The American Recovery and Reinvestment Act of 2009 substantially lowered interest rates in an attempt to stimulate investment spending. created a $700 billion rescue package for financial institutions. implemented a $787 billion package of tax cuts and government expenditure increases. cut taxes by $152 billion, distributed primarily as rebate checks to taxpayers.

implemented a $787 billion package of tax cuts and government expenditure increases.

A contractionary fiscal policy is shown as a leftward shift in the economy's aggregate demand curve. rightward shift in the economy's aggregate demand curve. rightward shift in the economy's aggregate supply curve. movement along an existing aggregate demand curve.

leftward shift in the economy's aggregate demand curve.

The real burden of an increase in the public debt can be shifted to future generations if the debt is internally financed. may be very small or conceivably zero when the economy is in a severe depression. can best be measured by the dollar increase in the size of the debt. will be smaller when full employment exists than when the economy has large quantities of idle resources.

may be very small or conceivably zero when the economy is in a severe depression.

Other things equal, an increase of corporate bonds from $140 billion to $150 billion in the economy would decrease the public debt by $20 billion. not change the size of the public debt. increase the public debt from $600 billion to $610 billion. increase the public debt from $460 billion to $470 billion.

not change the size of the public debt.

Built-in stability means that Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus. government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy.

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.