Question 1

The "crowding-out effect" suggests that

Accepted Answer

A)  tax increases are paid primarily out of saving and therefore are not an effective fiscal device.
B)  increases in government spending financed through borrowing will increase the interest rate and reduce private investment.
C)  it is very difficult to have excessive aggregate spending in our economy.
D)  consumer and investment spending always vary inversely.E) All of the above
F) C) and D)

Question 2

Which of the following is correct?

Accepted Answer

A)  Both conservative economists and Keynesians believe the crowding-out effect is small.
B)  Both conservative economists and Keynesians believe the crowding-out effect is large.
C)  Conservative economists believe the crowding-out effect is small,while Keynesians believe it is large.
D)  Conservative economists believe the crowding-out effect is large,while Keynesians believe it is small.E) C) and D)
F) B) and C)

Question 3

Suppose that we reduce the federal budget deficit (in billions of dollars) in year 1 from 300 to 200 and in year 2 from 200 to 100.During these two years the national debt will

Accepted Answer

A)  fall by 300.
B)  fall by 200.
C)  stay the same.
D)  rise by 200.
E)  rise by 300.F) A) and B)
G) None of the above

Question 4

When there is an inflationary gap

Accepted Answer

A)  we are spending too much and taxes should be raised.
B)  we are spending too much and taxes should be lowered.
C)  we are spending too little and taxes should be raised.
D)  we are spending too little and taxes should be lowereD.E) B) and C)
F) A) and D)

Question 5

Even if the economy has considerable excess capacity,new government spending that creates new jobs involves opportunity costs because

Accepted Answer

A)  goods other than those purchased by government could have been produced and consumed.
B)  unemployed workers are unwilling to surrender leisure time to take paid jobs.
C)  excess capacity implies that the capital stock exceeds equilibrium.
D)  government employment is inefficient relative to jobs in the private sector.
E)  expansionary monetary policy stimulates employment without growth of national debt.F) B) and C)
G) D) and E)

Question 6

From the year 1993 to 1997,the federal budget deficit

Accepted Answer

A)  rose up a little.
B)  rose substantially.
C)  declined a little.
D)  declined substantially.E) None of the above
F) A) and C)

Question 7

The 1990 deficit reduction legislation

Accepted Answer

A)  contained no new taxes.
B)  increased excise tax rates.
C)  increased the personal income tax rates by 10%.
D)  contained no reductions in non-defense spending.E) A) and B)
F) C) and D)

Question 8

If we are running a federal budget deficit,the national debt

Accepted Answer

A)  may be rising.
B)  is definitely rising.
C)  is constant.
D)  may be falling.
E)  is definitely falling.F) A) and D)
G) A) and C)

Question 9

Balancing the federal budget over the business cycle requires

Accepted Answer

A)  deficits incurred during economic slumps that are offset by surpluses during economic booms.
B)  raising taxes and cutting spending during stagflation.
C)  rapid increases in the national debt during national emergencies.
D)  matching deficits and surpluses each time Earth orbits the sun.
E)  that the national debt grow only as fast as GDP grows.F) B) and D)
G) A) and B)

Question 10

Governmental assistance to the unemployed

Accepted Answer

A)  was advocated by classical economists.
B)  is taxed as regular income by the federal government.
C)  is opposed by Keynesian economists.
D)  was abolished under the 1986 Tax Reform Act.
E)  may increase unemployment because it enables the jobless to take more time to look for employment.F) A) and D)
G) All of the above

Question 11

Since 1990,the length of time required to restore full employment after each recession has

Accepted Answer

A)  has increased by about a year each recession.
B)  has increased by 6 months each recession.
C)  has decreased by 6 months each recession.
D)  was about the same as previous recessions.E) A) and B)
F) A) and C)

Question 12

Fiscal policy deals with each of the following,except

Accepted Answer

A)  the money supply.
B)  government spending.
C)  taxation.
D)  the federal budget.E) A) and D)
F) C) and D)

Question 13

If MPC is .8 and investment rises by $30 billion,GDP will rise by $_________.

Accepted Answer

The answer of If MPC is .8 and investment rises...

Question 14

-How much is it?

Accepted Answer

The answer of 
-How much is it?...

Question 15

Which of the following statements is false?

Accepted Answer

A)  The national debt is the sum of our deficits minus surpluses from George Washington's administration to the present
B)  Half of the publicly held national debt is foreign owned.
C)  The national debt will have to be paid off eventually or the country will go bankrupt.
D)  Balancing the federal budget during a depression will make the depression worse.E) A) and C)
F) All of the above

Question 16

If the economy is to have built-in stability,when real GDP falls

Accepted Answer

A)  tax revenues and government transfer payments should fall.
B)  tax revenues and government transfer payments should rise.
C)  tax revenues should fall and government transfer payments should rise.
D)  tax revenues should rise and government transfer payments should fall.E) All of the above
F) B) and C)

Question 17

The "crowding-out effect" suggests that

Accepted Answer

A)  government spending is increasing at the expense of private investment.
B)  imports are replacing domestic production.
C)  private investment is increasing at the expense of government spending.
D)  consumption is increasing at the expense of investment.E) A) and D)
F) B) and C)

Question 18

The "crowding-in" effect suggests that

Accepted Answer

A)  government spending is increasing at the expense of private investment.
B)  private investment is encouraged by economic expansion.
C)  private investment is decreasing because of government spending.
D)  consumption is increasing at the expense of investment.E) None of the above
F) A) and B)

Question 19

Statement I: The federal budget deficit is the same thing as the national debt.
Statement II: The national debt will continue to rise even if the federal budget deficit is lowered.

Accepted Answer

A)  Statement I is true and statement II is false.
B)  Statement II is true and statement I is false.
C)  Both statements are true.
D)  Both statements are false.E) A) and D)
F) B) and D)

Question 20

Nearly all of the budget deficits we had in the 1980s were

Accepted Answer

A)  under $10 billion.
B)  between $100 billion and $200 billion.
C)  between $200 billion and $300 billion.
D)  over $300 billion.E) A) and B)
F) B) and C)

Exam 12: Fiscal Policy and the National Debt

If the economy is to have built-in stability,when real GDP falls

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When there is an inflationary gap

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The "crowding-out effect" suggests that

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Fiscal policy deals with each of the following,except

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Since 1990,the length of time required to restore full employment after each recession has

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The "crowding-out effect" suggests that

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-How much is it?

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Statement I: The federal budget deficit is the same thing as the national debt. Statement II: The national debt will continue to rise even if the federal budget deficit is lowered.

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From the year 1993 to 1997,the federal budget deficit

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Governmental assistance to the unemployed

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Nearly all of the budget deficits we had in the 1980s were

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Which of the following statements is false?

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Balancing the federal budget over the business cycle requires

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Which of the following is correct?

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The 1990 deficit reduction legislation

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Suppose that we reduce the federal budget deficit (in billions of dollars) in year 1 from 300 to 200 and in year 2 from 200 to 100.During these two years the national debt will

Correct AnswerverifiedShow Answer

The "crowding-in" effect suggests that

Correct AnswerverifiedShow Answer

If we are running a federal budget deficit,the national debt

Correct AnswerverifiedShow Answer

If MPC is .8 and investment rises by $30 billion,GDP will rise by $_________.

Correct AnswerverifiedShow Answer

Even if the economy has considerable excess capacity,new government spending that creates new jobs involves opportunity costs because

Correct AnswerverifiedShow Answer

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