Quiz 10 (Chapter 13)

The cyclically-adjusted surplus in the U.S. went from +1.2% of GDP in 2000 to +0.6% of GDP in 2002. This suggests that the government during that period:

Cut taxes and increased spending

The Great Recession of 2007-09 and the consequent policy response made the:

Cyclically-adjusted deficit grow during that period

Refer to the graph above. A budget surplus would be associated with GDP level:

L

To track the public debt over time and understand its significance to the economy, it is best:

Measured relative to the gross domestic product

Most economists believe that fiscal policy is:

Not as good as monetary policy for month-to-month stabilization

There is general agreement among economists that a proposed fiscal policy should be evaluated for its:

Potential positive and negative effects on long-run productivity growth

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:

Profit expectations resulting from an increase in government spending

A major concern with the Social Security trust fund is that:

The fund will exhausted in a couple of decades

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:

Contractionary fiscal policy

A given reduction in government spending will dampen demand-pull inflation by a greater amount when the:

Economy's MPS is large

The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending assuming that the aggregate supply curve is horizontal across the range of GDP being considered?

$10 billion

The following is an investment schedule. Investment spending is in billions of dollars. Refer to the data in the table above. Assume that private investment spending is initially $78 billion. If the government finances a deficit and this action increases the interest rate by 2 percentage points, then the government financing would have potentially crowded out:

$17 billion of investment spending

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

2000? 1999? 2004?

Of the U.S. Federal debt held by foreigners in 2012, China held roughly:

22% 48% 84%

The intent of contractionary fiscal policy is to:

Decrease aggregate demand

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:

Decrease, thus partially offsetting the fiscal policy

Due to automatic stabilizers, when the nation's total income rises, government transfer spending:

Decreases and tax revenues increase

The public debt is the:

Difference between current government expenditures and current tax revenues

The cyclically-adjusted surplus as a percentage of GDP is 1 percent in Year 1. This surplus becomes a deficit of 2 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

Fiscal policy turned more expansionary

The bursting of the Dot.com bubble in 2000, along with the terrorist attacks in 2001, made the U.S. government:

Increase its cyclically-adjusted budget deficit from 2000 to 2002

If the economy is to have significant built-in stability, then when real GDP increases, the tax revenues should:

Rise proportionately more than the change in GDP

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:

Serves as an automatic stabilizer for the economy

One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the:

Time fiscal action is taken and the time that the action has its effect on the economy

Through the start of 2009, Social Security revenues exceeded payouts, and the excess inflow was used to buy:

Treasury securities

Suppose the reserve requirement is 10%. a. If the Federal Reserve decreases the reserve requirement, banks can lend out: - fewer reserves, thus increasing the money multiplier and increasing the money supply. - more reserves, thus increasing the money multiplier and increasing the money supply. - more reserves, thus increasing the money multiplier and increasing the money supply. -fewer reserves, thus decreasing the money multiplier and decreasing the money supply. -more reserves, thus decreasing the money multiplier and decreasing the money supply. b. The Federal Reserve: -rarely changes the reserve requirement and does not use the reserve requirement as a major monetary policy tool. -does not have the ability to change the reserve requirement since banks determine the amount of reserves to lend. -needs permission from the president before making changes to the reserve requirement. -changes the reserve requirement frequently in order to make adjustments to the money supply.

a. more reserves, thus increasing the money multiplier and increasing the money supply. b. rarely changes the reserve requirement and does not use the reserve requirement as a major monetary policy tool.

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:

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

The American Recovery and Reinvestment Act of 2009 included mostly:

Increases in government spending and decreases in taxes

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

Public investment complements private investment

A public debt which is owed to foreigners can be burdensome because:

The payment of interest reduces the volume of goods and services available for domestic uses