Question 1

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

Accepted Answer

A)   decrease its cyclically adjusted budget deﬁcit from 2000 to 2002.
B)   increase its cyclically adjusted budget surplus from 2000 to 2002.
C)   increase its cyclically adjusted budget deﬁcit from 2000 to 2002.
D)   increase its actual budget surplus from 2000 to 2002.E) B) and C)
F) C) and D)

Question 2

Fiscal policy is mainly undertaken by the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 3

Incurring an internal debt to ﬁnance a war like World War II does not pass the true cost of the war on to future generations because

Accepted Answer

A)   the opportunity cost of wartime expenditures was borne by the generation that lived during the war.
B)   the Federal government can shift expenditures from military goods to the production of other public goods.
C)   the Federal government has the power to levy taxes to pay its debts.
D)   wartime inﬂation reduces the relative size of the public debt.E) C) and D)
F) B) and D)

Question 4

Of the U.S. federal debt held by foreigners in 2018, China held roughly

Accepted Answer

A)   80 percent.
B)   67 percent.
C)   50 percent.
D)   21 percent.E) B) and C)
F) A) and D)

Question 5

When the economy is at full employment,

Accepted Answer

A)   one cannot generalize in comparing the actual and the cyclically adjusted budgets.
B)   the cyclically adjusted budget will show a surplus and the actual budget will show a deﬁcit.
C)   the actual budget will show a surplus and the cyclically adjusted budget will show a deﬁcit.
D)   the actual and the cyclically adjusted budgets will be equal.E) A) and B)
F) None of the above

Question 6

Contractionary ﬁscal policy is so named because it

Accepted Answer

A)   involves a contraction of the nation's money supply.
B)   necessarily reduces the size of government.
C)   is aimed at reducing aggregate demand and thus achieving price stability.
D)   is expressly designed to expand real GDP.E) None of the above
F) A) and C)

Question 7

In 2018, about ____ percent of the U.S. public debt was held by the U.S. government and Federal Reserve.

Accepted Answer

A)   14
B)   50
C)   62
D)   37E) A) and C)
F) A) and B)

Question 8

Year  Actual Budget, Percent of GDP  (-deficits, + Surpluses)   Cyclically-Adjusted Budget, Percent of GDP  (-deficits, + Surpluses)  1002−303−5−24−2−25+2+1\begin{array} { | c | c | c | } \hline 	ext { Year } & \begin{array} { c } 	ext { Actual Budget, Percent of GDP } \	ext { (-deficits, } + 	ext { Surpluses)  }\end{array} & \begin{array} { c } 	ext { Cyclically-Adjusted Budget, Percent of GDP } \	ext { (-deficits, } + 	ext { Surpluses)  }\end{array} \\hline 1 & 0 & 0 \\hline 2 & - 3 & 0 \\hline 3 & - 5 & - 2 \\hline 4 & - 2 & - 2 \\hline 5 & + 2 & + 1 \\hline\end{array} Year 12345​ Actual Budget, Percent of GDP  (-deficits, + Surpluses)  ​0−3−5−2+2​ Cyclically-Adjusted Budget, Percent of GDP  (-deficits, + Surpluses)  ​00−2−2+1​​  Refer to the table for a ?ctional economy. The changes in the budget conditions between Year 4 and 5 best re?ect a(n)

Accepted Answer

A)   recession.
B)   expansionary ?scal policy.
C)   tax increase.
D)   contractionary ?scal policy. E) A) and B)
F) A) and C)

Question 9

The public debt is the accumulation of all deﬁcits and surpluses that have occurred through time.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)   crowding-out lag.
B)   recognition lag.
C)   operational lag.
D)   administrative lag.E) A) and B)
F) A) and C)

Question 11

Gross Domestic Product (GDP)   Consumption (C)  $0$40100120200200300280400360\begin{array} { | c | c | } \hline 	ext { Gross Domestic Product (GDP)  } & 	ext { Consumption (C)  } \\hline \$ 0 & \$ 40 \\hline 100 & 120 \\hline 200 & 200 \\hline 300 & 280 \\hline 400 & 360 \\hline\end{array} Gross Domestic Product (GDP)  $0100200300400​ Consumption (C)  $40120200280360​​  The accompanying table is the before-tax consumption schedule for a closed economy. If a lump-sum tax (the same tax amount at each level of GDP)  of $40 is imposed in this economy, we can conclude that
The tax

Accepted Answer

A)   enhances the economy's built-in stability.
B)   reduces the economy's built-in stability.
C)   neither increases nor decreases built-in stability.
D)   increases the MPC and therefore increases the size of the multiplier. E) B) and C)
F) A) and D)

Question 12

Permanent tax reductions are more likely to be expansionary than temporary tax reductions.

Accepted Answer

A) True 
 B)False

Question 13

Security  Amount (in Billions)   Treasury Bills $220 Corporate Bonds 140 Treasury Notes 80 Corporate Stock 200 US Savings Bonds 60 Treasury Bonds 100\begin{array} { | l | c | } \hline 	ext { Security } & 	ext { Amount (in Billions)  } \\hline 	ext { Treasury Bills } & \$ 220 \\hline 	ext { Corporate Bonds } & 140 \\hline 	ext { Treasury Notes } & 80 \\hline 	ext { Corporate Stock } & 200 \\hline 	ext { US Savings Bonds } & 60 \\hline 	ext { Treasury Bonds } & 100 \\hline\end{array} Security  Treasury Bills  Corporate Bonds  Treasury Notes  Corporate Stock  US Savings Bonds  Treasury Bonds ​ Amount (in Billions)  $2201408020060100​​  Other things equal, an increase of corporate bonds from $140 billion to $150 billion in the economy would

Accepted Answer

A)   not change the size of the public debt.
B)   increase the public debt from $460 billion to $470 billion.
C)   increase the public debt from $600 billion to $610 billion.
D)   decrease the public debt by $20 billion. E) B) and D)
F) A) and B)

Question 14

Which of the following is considered a legitimate concern of a large public debt?

Accepted Answer

A)   bankruptcy of the federal government
B)   crowding out of private investment
C)   burdening future generations
D)   collapse of the ﬁnancial systemE) B) and C)
F) A) and B)

Question 15

When the Federal government takes budgetary action to stimulate the economy or rein in inﬂation, such policy is

Accepted Answer

A)   active monetary policy.
B)   automatic ﬁscal policy.
C)   discretionary ﬁscal policy.
D)   active federal policy.E) C) and D)
F) B) and D)

Question 16

The Medicare trust fund is expected, if current ﬂows continue, to be depleted by 2024.

Accepted Answer

A) True 
 B)False

Question 17

The portion of the public debt owed to foreigners does not represent any real economic burden to
Americans because we received money from foreigners when we incurred the debt.

Accepted Answer

A) True 
 B)False

Question 18

A federal budget deﬁcit exists when

Accepted Answer

A)   federal government assets are less than liabilities in a given year.
B)   federal government spending exceeds tax revenues in a given year.
C)   federal government spending is increasing in a given year.
D)   federal government taxation is decreasing in a given year.E) B) and D)
F) A) and C)

Question 19

The cyclically adjusted budget tells us

Accepted Answer

A)   that in a full-employment economy, the federal budget should be in balance.
B)   that tax revenues should vary inversely with GDP.
C)   what the size of the federal budget deﬁcit or surplus would be if the economy was at full employment.
D)   the actual budget deﬁcit or surplus realized in any given year.E) A) and B)
F) C) and D)

Question 20

From 1995 to 2001, the U.S. public debt relative to GDP

Accepted Answer

A)   increased, and fell since then.
B)   decreased, and increased since then.
C)   increased steadily and continued to increase since then.
D)   was roughly constant, but has increased since.E) B) and C)
F) A) and D)

Exam 13: Fiscal Policy, Deficits, and Debt

A federal budget deﬁcit exists when

Correct Answer
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Of the U.S. federal debt held by foreigners in 2018, China held roughly

Correct Answer
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When the economy is at full employment,

Correct Answer
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In 2018, about ____ percent of the U.S. public debt was held by the U.S. government and Federal Reserve.

Correct Answer
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Permanent tax reductions are more likely to be expansionary than temporary tax reductions.

Correct Answer
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The bursting of the dot-com bubble in 2000, along with the terrorist attacks in 2001, made the U.S. government

Correct Answer
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When the Federal government takes budgetary action to stimulate the economy or rein in inﬂation, such policy is

Correct Answer
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From 1995 to 2001, the U.S. public debt relative to GDP

Correct Answer
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Correct Answer
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The Medicare trust fund is expected, if current ﬂows continue, to be depleted by 2024.

Correct Answer
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Which of the following is considered a legitimate concern of a large public debt?

Correct Answer
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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

Correct Answer
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Correct Answer
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Contractionary ﬁscal policy is so named because it

Correct Answer
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The cyclically adjusted budget tells us

Correct Answer
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Fiscal policy is mainly undertaken by the Federal Reserve.

Correct Answer
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The public debt is the accumulation of all deﬁcits and surpluses that have occurred through time.

Correct Answer
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The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

Correct Answer
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Incurring an internal debt to ﬁnance a war like World War II does not pass the true cost of the war on to future generations because

Correct Answer
verified

Exam 13: Fiscal Policy, Deficits, and Debt

A federal budget deﬁcit exists when

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Of the U.S. federal debt held by foreigners in 2018, China held roughly

Correct AnswerverifiedShow Answer

When the economy is at full employment,

Correct AnswerverifiedShow Answer

In 2018, about ____ percent of the U.S. public debt was held by the U.S. government and Federal Reserve.

Correct AnswerverifiedShow Answer

Permanent tax reductions are more likely to be expansionary than temporary tax reductions.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the Federal government takes budgetary action to stimulate the economy or rein in inﬂation, such policy is

Correct AnswerverifiedShow Answer

From 1995 to 2001, the U.S. public debt relative to GDP

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Medicare trust fund is expected, if current ﬂows continue, to be depleted by 2024.

Correct AnswerverifiedShow Answer

Which of the following is considered a legitimate concern of a large public debt?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Contractionary ﬁscal policy is so named because it

Correct AnswerverifiedShow Answer

The cyclically adjusted budget tells us

Correct AnswerverifiedShow Answer

Fiscal policy is mainly undertaken by the Federal Reserve.

Correct AnswerverifiedShow Answer

The public debt is the accumulation of all deﬁcits and surpluses that have occurred through time.

Correct AnswerverifiedShow Answer

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

Correct AnswerverifiedShow Answer

Incurring an internal debt to ﬁnance a war like World War II does not pass the true cost of the war on to future generations because

Correct AnswerverifiedShow Answer

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