The use of government taxes and spending to alter economic outcomes is known as |
Fiscal policy. |
Which of the following represents the use of fiscal policy to achieve a fiscal stimulus? |
Greater government expenditure or lower taxes. |
If full-employment income and equilibrium income are equal for a country, then a tax cut will result in |
Excess AD. |
Which of the following is an appropriate fiscal policy prescription for the government to follow? |
Deficit reduction when there is excess AD. |
Deficit spending results whenever the government |
Finances current expenditures that exceed current tax revenues. |
Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint? |
. Less government expenditure and higher taxes. |
With greater deficit spending, ceteris paribus, |
Any inflationary gap will become larger. |
If full-employment output exceeds equilibrium output, greater deficit spending will result in |
Smaller recessionary gap. |
With an increase in deficit spending, the |
Aggregate demand curve shifts to the right. |
If the economy is in a recession, |
It is operating inside the production possibilities curve, and the opportunity cost of deficit spending is zero. |
A budget surplus is |
An excess of government revenues over government expenditures in a given time period. |
When there is excess aggregate demand, the appropriate fiscal policy would be for the government to |
Make budget surpluses larger. |
In order to reduce the U.S. debt |
The government should spend less than it collects in tax revenues. |
According to Keynes, an unbalanced budget is appropriate in all of the following situations except when |
The economy is at full employment. |
Which of the following is an argument against balancing the federal budget? |
Doing so may prevent the government from pulling the economy out of recession. |
The fiscal year |
Is the 12-month period used for federal government accounting purposes. |
The fiscal year for the federal government begins on |
October 1. |
The elements of the federal budget not determined by past legislative or executive commitments are |
. Discretionary fiscal spending. |
Discretionary expenditures account for approximately |
One-fifth of the federal budget. |
Much of each year’s federal budget is considered "uncontrollable" because |
Most of the current revenues and expenditures are the result of decisions made in prior years. |
Uncontrollable government spending includes |
Interest payments on the national debt. |
In order to maintain a balanced budget every year, during a recession the government would have to |
Decrease spending or increase taxes or both. |
Fiscal restraint is |
Tax hikes and/or spending cuts intended to reduce aggregate demand. |
Which of the following is not an automatic stabilizer? |
Defense spending. |
Automatic stabilizers tend to stabilize the level of economic activity because they |
Increase spending during recessions and reduce spending during inflationary periods. |
Automatic stabilizers |
Help to moderate the extremes of the business cycle. |
Spending for unemployment compensation and welfare benefits increase automatically |
When the economy goes into recession. |
Which of the following is an automatic stabilizer that reduces tax receipts during a recession? |
Corporate and individual income taxes. |
… |
… |
All of the following contribute to greater deficits when unemployment rises and reduce the deficit during an inflationary gap except for |
U.S. exports. |
… |
… |
A progressive income tax system is particularly effective as an automatic stabilizer because |
In a booming economy, taxpayers move into higher tax brackets, which restrains their spending. |
Which of the following is a possible effect of automatic stabilizers on the federal budget? |
decrease in the deficit during an expansion. |
An increase in unemployment, ceteris paribus, |
Reduces a budget surplus. |
Which of the following is most likely to increase a federal budget surplus? |
A higher inflation rate and a lower unemployment rate. |
Which of the following is most likely to reduce a federal budget surplus? |
A recession. |
Which of the following might encourage the government to let inflation rates rise? |
A higher inflation rate reduces the budget deficit. |
For the convenience of analyzing the part of the deficit that is sensitive to fiscal policy, the actual deficit is divided into which of the following components? |
Structural and cyclical deficits. |
In contrast to the structural deficit, the cyclical deficit reflects |
Fluctuations in economic activity. |
Which of the following results from a change in the business cycle, ceteris paribus? |
Cyclical unemployment. |
If the cyclical deficit shrank by $60 billion while the structural deficit increased by $35 billion, the total deficit |
Fell by $25 billion. |
If the budget deficit for each year is held to a constant nominal value during constant inflationary times, then the inflation-corrected or real value of the total debt would |
Rise at a decreasing rate. |
The structural deficit represents |
Federal revenues minus federal expenditures at full employment under current fiscal policy. |
If the structural deficit is zero, |
At full employment, the budget is balanced. |
Suppose the economy is at a full-employment GDP of $1 trillion and the tax revenue received by the federal government is always one-fifth of GDP. If planned government expenditure is $300 billion, the structural |
Deficit is $100 billion. |
If the total budget deficit is $200 billion and the deficit at full employment is $120 billion, then the |
Cyclical deficit is $80 billion. |
The largest percentage of U.S. national debt to GDP occurred during |
World War II. |
Which of the following is the best indication that the government is pursuing restrictive fiscal policy? |
The structural deficit decreases. |
A decrease in private sector borrowing and spending caused by increased government borrowing is |
. Crowding out. |
Crowding out is most likely to occur when the federal government |
Runs a deficit and sells bonds to make up the difference. |
Increased government purchases crowd out private purchases whenever the economy is |
On the production possibilities curve. |
Which of the following is not true when the economy is fully employed and government bonds are sold to finance greater government spending? |
The government is running a cyclical deficit. |
The opportunity cost of the debt is |
Less of an issue if the economy is below full employment since crowding out is less likely to occur. |
An opportunity cost that occurs because of increased government spending is |
The crowding out of private sector output. |
The government can use a budget surplus to do all of the following except |
Decrease the money supply. |
If there was a federal budget surplus and the government decided to either increase spending or decrease taxes |
The budget surplus would get smaller. |
An increase in private sector borrowing and spending caused by decreased government borrowing is known as |
Crowding in. |
Which of the following would occur if the federal government decided to use a budget surplus to reduce the existing debt? |
Crowding in and private sector output would increase. |
Crowding in is the result of |
Falling interest rates. |
The national debt is |
The accumulation of all annual deficit and surplus flows. |
The U.S. government incurred a national debt for the first time during |
The Revolutionary War. |
The debt would cease to grow if |
The federal government balanced its budget. |
The national debt |
Equals the dollar amount of outstanding U.S. Treasury bonds. |
The fiscal agent of the U.S. government is the |
U.S. Treasury. |
In the 20th century, the ratio of the U.S. debt to GDP has |
Risen in response to wars. |
A measure of the burden of continual deficit financing over time is the ratio of |
The debt to the GDP. |
The national debt increased by nearly $2 trillion in the 1980s because of all of the following except |
College financing. |
Debt accumulation by the U.S. government in the 1980s |
Exceeded the debt the country had accumulated over the preceding 200 years. |
Which of the following contributed to the increase in the national debt during the 1990s? |
The bailout of failed savings and loan associations. |
Policies designed to pay off the national debt will result in: |
A smaller level of aggregate demand |
The U.S. federal debt that accumulated between 1970 and 2010 |
Is an asset and a liability for the U.S. economy. |
An obligation to make future payment is |
. A liability. |
When the Federal Reserve System buys bonds in the open market, the national debt |
Is not affected. |
Internal ownership of the national debt occurs when U.S. Treasury bonds are purchased b all of the following except |
Foreign countries that we trade with. |
Federal agencies hold roughly _____ percent of all outstanding Treasury bonds. |
16 |
Which of the following owns the largest portion of the U.S. national debt? |
The federal government. |
The largest single holder of the U.S. national debt after the U.S. government is |
The foreign sector. |
The U.S. private sector holds about _____ percent of outstanding U.S. Treasury bonds. |
24 |
U.S. Treasury bonds owned by U.S. households, institutions, and government entities are referred to as |
Internal debt. |
Foreign households and institutions hold approximately _____ percent of the U.S. national debt. |
31 |
When the U.S. Treasury issues new bonds to replace bonds that have matured, it is engaging in |
Debt refinancing. |
Interest payments on the national debt |
Are a redistribution of income from taxpayers to bondholders. |
The "real burden" of the debt is directly related to |
The idea of opportunity cost. |
The cost of servicing the debt may increase if |
Interest rates rise. |
Debt service |
. Refers to the annual interest payments on the debt. |
Selling bonds to finance new government debt leads to an opportunity cost that is |
The same as financing government debt with taxes. D. Dependent on who buys the bonds. |
Deficit financing tends to change the mix of output in the direction of more |
Public sector goods. |
The burden of the internal portion of the debt is incurred |
When the debt-financed activity takes place. |
If debt-financed less productive government spending crowds out more productive private investment, future generations will bear |
. Some of the burden of the debt due to lower productive capacity. |
If deficit spending does not contribute to public investment and crowds out private investment, then |
The rate of economic growth will decline, ceteris paribus. |
Which of the following statements about the U.S. national debt is not correct? |
The primary economic costs of the debt are being passed on to future generations. |
External debt of the United States refers to |
U.S. government debt held by foreigners. |
At the time it occurs, external financing of the debt allows the economy to |
Consume beyond the production possibilities curve. |
The burden of the debt is passed on to future generations when the debt is held by |
Foreign households. |
A deficit ceiling directly limits |
The rate at which government spending can exceed government revenue. |
The Gramm-Rudman-Hollings Act of 1985 created a |
. Deficit ceiling. |
Which of the following is not an explanation of why the Gramm-Rudman-Hollings Act proved inadequate in reducing the deficit? |
Congress controls only the cyclical portion of government spending. |
If Congress failed to keep the deficit below the ceiling, then the Gramm-Rudman-Hollings Act required |
Automatic spending cuts. |
Debt ceilings are designed to |
Reduce the deficit. |
To pay back Social Security loans, Congress could do all of the following except |
Sell fewer U.S. Treasury bonds. |
macro chapter 12
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