Question 1

In an aggregate demand and aggregate supply graph, an expansionary fiscal policy can be illustrated by a:

Accepted Answer

A)  leftward shift in the aggregate demand curve.
B)  rightward shift in the aggregate demand curve.
C)  leftward shift in the aggregate supply curve.
D)  change in the price level.E) A) and B)
F) None of the above

Question 2

Foreign individuals and institutions hold about what percentage of the public debt?

Accepted Answer

A)  5 percent
B)  14 percent
C)  22 percent
D)  29 percentE) A) and C)
F) B) and C)

Question 3

Which of the following phases of a business cycle generates cyclical deficit (a movement from a surplus to a deficit)  as a by-product?

Accepted Answer

A)  Recession
B)  Trough
C)  Expansion
D)  PeakE) B) and D)
F) A) and B)

Question 4

A tax reduction of a specific amount will be more expansionary, the:

Accepted Answer

A)  smaller is the economy's MPC.
B)  larger is the economy's MPC.
C)  smaller is the economy's multiplier.
D)  less the economy's built-in stability.E) B) and D)
F) B) and C)

Question 5

Discretionary fiscal policy is so named because it:

Accepted Answer

A)  is undertaken at the option of the nation's central bank.
B)  occurs automatically as the nation's level of GDP changes.
C)  involves specific changes in T and G undertaken expressly for stabilization purposes at the option of Parliament.
D)  none of the above.E) B) and D)
F) B) and C)

Question 6

Which of the following best describes the notion of a "political business cycle"?

Accepted Answer

A)  Politicians are more willing to cut taxes and increase government spending than they are to do the reverse.
B)  Fiscal policy will result in alternating budget deficits and surpluses.
C)  Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
D)  Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.E) A) and C)
F) A) and B)

Question 7

Refer to the above graph.If interest rates increased by 2 percentage points, what event would most likely counteract the crowding-out effect?

Accepted Answer

A)  a shift from curve B to curve A
B)  a shift from curve A to curve B
C)  a movement from point 5 to point 2
D)  a movement from point 3 to point 1E) None of the above
F) All of the above

Question 8

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

Accepted Answer

A)  It decreases domestic interest rates, causing the dollar to appreciate and net exports to decrease.
B)  It decreases domestic interest rates, causing the dollar to depreciate and net exports to increase.
C)  It decreases domestic interest rates, causing the dollar to depreciate and net exports to decrease.
D)  It increases domestic interest rates, causing the dollar to appreciate and net exports to decrease.E) A) and B)
F) A) and C)

Question 9

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary the:

Accepted Answer

A)  smaller is the economy's MPS.
B)  larger is the economy's MPS.
C)  smaller is the economy's MPC.
D)  larger is the unemployment rate.E) B) and D)
F) A) and B)

Question 10

The actual budget may be in deficit while the full-employment budget is in surplus.

Accepted Answer

A) True 
 B)False

Question 11

The following budget information is for a hypothetical economy.All data are in billions of dollars.  Refer to the above data.If year 1 is the first year of this nation's existence and year 5 is the present year, this nation's public debt is:

Accepted Answer

A)  $295 billion.
B)  $100 billion.
C)  $3540 billion.
D)  $230 billion.E) B) and D)
F) B) and C)

Question 12

Refer to the diagram below wherein T is tax revenues and G is government expenditures.All figures are in billions.In this economy:

Accepted Answer

A)  tax revenues and government spending both vary directly with GDP.
B)  tax revenues vary directly with GDP, but government spending is independent of GDP.
C)  tax revenues and government spending both vary inversely with GDP.
D)  government spending varies directly with GDP, but tax revenues are independent of GDP.E) None of the above
F) A) and B)

Question 13

Increased government spending for investments such as highways or harbours financed by increasing the public debt would most likely:

Accepted Answer

A)  crowd out future public investment.
B)  reduce the economy's future productive capacity.
C)  increase the amount of public capital stock in the future.
D)  increase the amount of private capital stock in the future.E) All of the above
F) B) and D)

Question 14

The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the diagram below.Which tax system will generate the largest cyclical deficits?

Accepted Answer

A)  T4
B)  T3
C)  T2
D)  T1E) A) and C)
F) A) and D)

Question 16

Cyclically adjusted deficits are:

Accepted Answer

A)  generally smaller than actual deficits.
B)  generally larger than actual deficits.
C)  identical to actual deficits.
D)  opposite to actual deficits.E) A) and B)
F) B) and C)

Question 17

Which are contractionary fiscal policies?

Accepted Answer

A)  increased taxation and increased government spending
B)  increased taxation and decreased government spending
C)  decreased taxation and no change in government spending
D)  no change in taxation and increased government spendingE) B) and C)
F) A) and B)

Question 18

Discretionary fiscal policy will stabilize the economy most when:

Accepted Answer

A)  deficits are incurred during recessions and surpluses during inflations.
B)  the budget is balanced each year.
C)  deficits are incurred during inflations and surpluses during recessions.
D)  budget surpluses are continuously incurreE) C) and D)
F) B) and D)

Question 19

Actual deficits are:

Accepted Answer

A)  Generally smaller than actual deficits
B)  Generally larger than actual deficits
C)  Identical to actual deficits
D)  Opposite to actual deficitsE) C) and D)
F) A) and D)

Question 20

You are given the following information about aggregate demand at the existing price level for an economy: (1)  consumption = $400 billion; (2)  investment = $40 billion; (3)  government purchases = $90 billion; and (4)  net export = $25 billion.If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with the goal of achieving full employment?

Accepted Answer

A)  increase government spending and taxes
B)  decrease government spending and taxes
C)  decrease government spending and increase taxes
D)  increase government spending and decrease taxesE) B) and C)
F) A) and C)

Exam 13: Part B: Fiscal Policy, Deficits, Surpluses, and Debt

Discretionary fiscal policy will stabilize the economy most when:

Correct Answer
verified

In an aggregate demand and aggregate supply graph, an expansionary fiscal policy can be illustrated by a:

Correct Answer
verified

Refer to the diagram below wherein T is tax revenues and G is government expenditures.All figures are in billions.In this economy:

Correct Answer
verified

A tax reduction of a specific amount will be more expansionary, the:

Correct Answer
verified

Foreign individuals and institutions hold about what percentage of the public debt?

Correct Answer
verified

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

Correct Answer
verified

Increased government spending for investments such as highways or harbours financed by increasing the public debt would most likely:

Correct Answer
verified

Refer to the diagram below.Which tax system will generate the largest cyclical deficits?

Correct Answer
verified

Which of the following phases of a business cycle generates cyclical deficit (a movement from a surplus to a deficit) as a by-product?

Correct Answer
verified

Which are contractionary fiscal policies?

Correct Answer
verified

Refer to the above graph.If interest rates increased by 2 percentage points, what event would most likely counteract the crowding-out effect?

Correct Answer
verified

Which of the following best describes the notion of a "political business cycle"?

Correct Answer
verified

The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Correct Answer
verified

The actual budget may be in deficit while the full-employment budget is in surplus.

Correct Answer
verified

Actual deficits are:

Correct Answer
verified

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary the:

Correct Answer
verified

Cyclically adjusted deficits are:

Correct Answer
verified

Correct Answer
verified

Discretionary fiscal policy is so named because it:

Correct Answer
verified

The following budget information is for a hypothetical economy.All data are in billions of dollars. Refer to the above data.If year 1 is the first year of this nation's existence and year 5 is the present year, this nation's public debt is:

Correct Answer
verified

Exam 13: Part B: Fiscal Policy, Deficits, Surpluses, and Debt

Discretionary fiscal policy will stabilize the economy most when:

Correct AnswerverifiedShow Answer

In an aggregate demand and aggregate supply graph, an expansionary fiscal policy can be illustrated by a:

Correct AnswerverifiedShow Answer

Refer to the diagram below wherein T is tax revenues and G is government expenditures.All figures are in billions.In this economy:

Correct AnswerverifiedShow Answer

A tax reduction of a specific amount will be more expansionary, the:

Correct AnswerverifiedShow Answer

Foreign individuals and institutions hold about what percentage of the public debt?

Correct AnswerverifiedShow Answer

Which set of events would best explain the effects of a contractionary fiscal policy on net exports?

Correct AnswerverifiedShow Answer

Increased government spending for investments such as highways or harbours financed by increasing the public debt would most likely:

Correct AnswerverifiedShow Answer

Refer to the diagram below.Which tax system will generate the largest cyclical deficits?

Correct AnswerverifiedShow Answer

Which of the following phases of a business cycle generates cyclical deficit (a movement from a surplus to a deficit) as a by-product?

Correct AnswerverifiedShow Answer

Which are contractionary fiscal policies?

Correct AnswerverifiedShow Answer

Refer to the above graph.If interest rates increased by 2 percentage points, what event would most likely counteract the crowding-out effect?

Correct AnswerverifiedShow Answer

Which of the following best describes the notion of a "political business cycle"?

Correct AnswerverifiedShow Answer

The operational lag of fiscal policy refers to the time which elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.

Correct AnswerverifiedShow Answer

The actual budget may be in deficit while the full-employment budget is in surplus.

Correct AnswerverifiedShow Answer

Actual deficits are:

Correct AnswerverifiedShow Answer

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary the:

Correct AnswerverifiedShow Answer

Cyclically adjusted deficits are:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Discretionary fiscal policy is so named because it:

Correct AnswerverifiedShow Answer

The following budget information is for a hypothetical economy.All data are in billions of dollars. Refer to the above data.If year 1 is the first year of this nation's existence and year 5 is the present year, this nation's public debt is:

Correct AnswerverifiedShow Answer

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