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The use of government taxes and spending to alter economic outcomes is known as
Monetary policy.
→
Fiscal policy.
Incomes policy.
Foreign trade policy.
Fiscal policy is the use of government taxes and spending to alter macroeconomic outcomes.
Multiple Choice
Difficulty: 1 Easy
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
award:
0.00 points
Which of the following is an appropriate fiscal policy prescription
for the government to follow?
Deficit reduction during a recession.
→
Deficit reduction when there is excess AD.
Deficit expansion in an inflationary gap.
Deficit reduction during a war.
The appropriate policy when the economy is experiencing an inflationary gap is fiscal restraint. Restrictive policy such
as tax hikes or spending cuts will cause the budget to tend toward a surplus increase or deficit reduction.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
11/12/2013 9:31 AM
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With greater deficit spending, ceteris paribus,
Aggregate spending should fall.
→
Any inflationary gap will become larger.
There are greater leakages.
There is inadequate information to tell what happens to aggregate spending.
Deficit spending occurs when government expenditures exceed tax revenues. Increased government spending or tax
cuts, which create the need for deficit spending, will increase aggregate demand. If an inflationary gap exists, the
increase in AD will cause it to get larger.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
award:
0.00 points
If full-employment output exceeds equilibrium output, greater deficit spending will result in a
→
Smaller recessionary gap.
Smaller inflationary gap.
Larger recessionary gap.
None of the choices are correct.
Deficit spending occurs when government expenditures exceed tax revenues. Increased government spending or tax
cuts, which create the need for deficit spending, will increase the aggregate demand. If a recessionary gap exists
(equilibrium output is less than full-employment output), the increase in AD will cause the gap to get smaller.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
award:
0.00 points
A budget surplus is
An excess of government spending over government revenues in a given time period.
→
An excess of government revenues over government expenditures in a given time period.
Used only in time of war.
None of the choices are correct.
A budget surplus is the excess of government revenues over government expenditures in a given time period.
Multiple Choice
Difficulty: 1 Easy
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
11/12/2013 9:31 AM
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Which of the following is true about the U.S. federal government budget for the year 1998?
The U.S. Constitution was amended to require a balanced federal budget.
The federal budget deficit was the largest in history.
→
Federal government receipts were greater than federal government spending for the first time in more
than 25 years.
Federal government outlays were greater than federal government receipts for the first time in more
than 25 years.
Budget deficits are overwhelmingly the rule, not the exception. A budget surplus was achieved in only four years
(1998-2001) since 1970.
Multiple Choice
Difficulty: 1 Easy
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
award:
0.00 points
In order to reduce the U.S. debt,
The government must use deficit spending.
→
The government should spend less than it collects in tax revenues.
There will be a transfer of revenue from bondholders to taxpayers.
Foreign governments must lend more money to the U.S. government.
The only way to stop the growth of the national debt
debt, budget surpluses would be needed.
Multiple Choice
is to eliminate the budget deficits that create debt. To reduce the
Difficulty: 2 Medium
Learning Objective: 12-02 How the
national debt
has accumulated.
award:
0.00 points
Which of the following is an argument against balancing the federal budget?
The federal government interferes with the economy too much.
An increase in government spending and taxes by the same amount does not affect income
→
.
Doing so may prevent the government from pulling the economy out of recession.
None of the choices are correct.
Balancing the budget during a recession would require a tax increase and/or government expenditure cuts. These
policies would decrease AD, thereby causing the economy to worsen.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
11/12/2013 9:31 AM
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In order to maintain a balanced budget every year, during a recession the government would have to
Decrease the money supply.
Increase the money supply.
→
Decrease spending or increase taxes or both.
Increase spending or decrease taxes or both.
During a recession, tax receipts automatically decrease while government expenditures automatically increase.
Therefore, in order to maintain a balanced budget, the government would have to increase taxes and/or cut
government expenditures.
Difficulty: 2 Medium
Multiple Choice
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
award:
0.00 points
Which of the following is not an automatic stabilizer?
Progressive income
Unemployment benefits
taxes.
.
Welfare payments.
→
Defense spending.
Defense spending is not determined by past legislative or executive commitments, so it is discretionary. Each
automatic stabilizer value changes with economic conditions. Income taxes, unemployment benefits
payments will change with changes in GDP.
Multiple Choice
Difficulty: 2 Medium
, and welfare
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
award:
0.00 points
Automatic stabilizers tend to stabilize the level of economic activity because they
Are changed quickly by Congress.
Increase the size of the multiplier.
→
Increase spending during recessions and reduce spending during inflationary periods.
Control the rate of change in prices.
Automatic stabilizers are federal expenditure or revenue items that automatically respond countercyclically to
changes in national income. In other words, during a recession tax revenues will decrease and entitlement spending
will increase without government intervention. During an expansion, tax revenues and will decline and expenditures
will decrease automatically.
Multiple Choice
Difficulty: 1 Easy
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
11/12/2013 9:31 AM
Assignment Print View
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Which of the following is most likely to increase a federal budget surplus?
A higher inflation rate and a higher unemployment rate.
→
A higher inflation rate and a lower unemployment rate.
A lower inflation rate and a higher unemployment rate.
A lower inflation rate and a lower unemployment rate.
The government budget will tend toward a surplus during economic growth or an inflationary gap. Higher inflation and
lower unemployment indicate that the economy is growing (AD is increasing). Also, higher inflation causing bracket
creep allows the government to pay off old debt with cheaper dollars.
Multiple Choice
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
Difficulty: 2 Medium
award:
0.00 points
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?
Automatic stabilizers and autonomous consumption.
C, I, G, X, and M.
→
Structural and cyclical deficits.
Frictional and seasonal deficits.
The budget deficit includes both cyclical and structural components. Changes in the structural component result from
policy changes; changes in the cyclical component result from changes in the economy.
Multiple Choice
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
Difficulty: 1 Easy
award:
0.00 points
The structural deficit represents
→
Federal revenues minus federal expenditures at full employment
under current fiscal policy.
Federal revenues minus expenditures under current fiscal policy at current output.
A measure of the size of recessionary or inflationary gaps.
The difference between expenditures at full employment
and expenditures at cyclical unemployment.
The structural portion of the deficit is equal to federal revenues minus expenditures at full employment
prevailing fiscal policy.
Multiple Choice
Difficulty: 1 Easy
under
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
11/12/2013 9:31 AM
Assignment Print View
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The largest percentage of U.S. national debt to GDP occurred during
The Civil War.
World War I.
→
World War II.
The Great Depression
.
The largest percentage of U.S. national debt to GDP occurred during World War II.
Multiple Choice
Difficulty: 1 Easy
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
award:
0.00 points
Which of the following is the best indication that the government is pursuing restrictive fiscal policy?
The total deficit increases.
The structural deficit increases.
The cyclical deficit increases.
→
The structural deficit decreases.
The cyclical portion of the budget balance reflects the impact of the business cycle on federal tax revenues and
spending. The structural deficit reflects fiscal policy decisions.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
award:
0.00 points
A decrease in private sector borrowing and spending caused by increased government borrowing is
Crowding in.
→
Crowding out.
Fiscal stimulus.
The GDP gap.
Crowding out is a reduction in private sector borrowing (and spending) caused by increased government borrowing.
Multiple Choice
Difficulty: 1 Easy
Learning Objective: 12-03 How and
when crowding out occurs.
11/12/2013 9:31 AM
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Crowding out is most likely to occur when the federal government
Runs a surplus and pays off part of the debt.
Has a balanced budget and refinances
a portion of the debt that matures.
Runs a deficit and raises taxes to generate more revenue.
→
Runs a deficit and sells bonds to make up the difference.
Crowding out is a reduction in private sector borrowing (and spending) caused by increased government borrowing.
Increased borrowing occurs when the government runs a budget deficit. Selling bonds is how the government
borrows money
.
Difficulty: 2 Medium
Multiple Choice
Learning Objective: 12-03 How and
when crowding out occurs.
award:
0.00 points
If there was a federal budget surplus and the government decided to either increase spending or decrease taxes,
→
The budget surplus would get smaller.
The budget surplus would get larger.
The budget surplus would remain unchanged.
None of the choices are correct.
There are four potential uses for a budget surplus: spend it on goods and services, cut taxes, increase income
transfers, or pay off old debt. The first three options effectively wipe out the surplus by changing budget outlays or
receipts.
Difficulty: 1 Easy
Multiple Choice
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
award:
0.00 points
An increase in private sector borrowing and spending caused by decreased government borrowing is known as
Crowding out.
→
Crowding in.
Crowding debt.
Debt reduction
.
Crowding in is an increase in private sector borrowing (and spending) caused by decreased government borrowing.
Multiple Choice
Difficulty: 1 Easy
Learning Objective: 12-03 How and
when crowding out occurs.
11/12/2013 9:31 AM
Assignment Print View
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The U.S. government incurred a national debt for the first time during
World War II.
Ronald Reagan's presidency.
→
The Revolutionary War.
The Great Depression.
The United States started out in debt. The Continental Congress needed to borrow money in 1777 to continue
fighting the Revolutionary War.
Multiple Choice
Learning Objective: 12-02 How the
national debt has accumulated.
Difficulty: 1 Easy
award:
0.00 points
The national debt
Is paid off each fiscal year when the debt is refinanced.
Will never be paid off in any given year, but it will be entirely paid off when it is refinanced over a
number of years.
Will be paid off when the budget is finally balanced.
→
Equals the dollar amount of outstanding U.S. Treasury bonds
.
The national debt is the accumulated debt of the federal government, the total stock of all outstanding bonds.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 12-02 How the
national debt has accumulated.
award:
0.00 points
If debt-financed less productive government spending crowds out more productive private investment, future
generations will bear
All of the burden of the debt due to higher taxes.
Zero burden as a result of the debt.
→
Some of the burden of the debt due to lower productive capacity.
A portion of the burden of the debt relative to the population size.
Although future generations may benefit from current government spending, they may also be adversely affected by
today's opportunity costs. Of particular concern is the possibility that government deficits might crowd out more
productive private investment. Investment is essential to enlarging our production possibilities and attaining higher
living standards in the future. If federal deficits and debt-servicing requirements crowd out private investment, the rate
of economic growth will slow, leaving future generations with less productive capacity than they would otherwise
have. Thus if debt-financed government spending crowds out more productive private investment, future generations
will bear some of the debt burden.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 12-04 What the
real burden of the national debt
is.
11/12/2013 9:31 AM
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If deficit spending does not contribute to public investment and crowds out private investment, then
→
The rate of economic growth will decline, ceteris paribus.
The current generation will bear the total burden of the debt.
Future productive capacity will be enhanced.
The opportunity cost of the debt will be minimized.
Government deficits might crowd out private investment. Investment is essential to enlarging our production
possibilities and attaining higher living standards in the future. If federal deficits and debt-servicing requirements
crowd out private investment, the rate of economic growth will slow, leaving future generations with less productive
capacity than they would otherwise have.
Difficulty: 2 Medium
Multiple Choice
Learning Objective: 12-04 What the
real burden of the national debt is.
award:
0.00 points
Which of the following required all new federal government spending initiatives to be offset with increased taxes or
cutbacks in other programs
?
Balanced Budget and Emergency Deficit Control Act of 1985.
Gramm-Rudman-Hollings Act of 1985.
→
The Budget Enforcement Act of 1990.
The Federal Deficit Act of 1982.
The Budget Enforcement Act (BEA) of 1990 laid out a plan for Congress to close the structural deficit by limiting
discretionary spending or raising taxes. The BEA set separate limits on defense spending, discretionary domestic
spending, and international spending. It also required that any new spending initiative be offset with increased taxes
or cutbacks in other programs
Multiple Choice
—a process called "pay as you go" or simply "paygo."
Difficulty: 1 Easy
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
11/12/2013 9:31 AM
Assignment Print View
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Refer to Figure 12.1. The concept of crowding in suggests that a government budget surplus would move the economy
from point
→
A to point C.
C to point A.
E to point F.
B to point A.
If the government budget is in surplus, interest rates may decrease, causing crowding in—an increase in private
sector borrowing (and spending) caused by decreased government borrowing. In this case, the increased private
sector borrowing will move the economy from point A to point C.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 12-03 How and
when crowding out occurs.
11/12/2013 9:31 AM
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In the In the News article in the text titled "Fiscal Policy in the Great Depression," President Hoover's prescription
1932 was for cutbacks in government spending and higher taxes. He was effectively
Targeting the goal of full employment
→
in
rather than reduction of inflation.
Decreasing the level of AD.
Applying the Keynesian prescription
for handling a depression.
Following the classical approach of laissez faire.
From 1931 to 1933, the structural deficit decreased from $4.5 billion to a $2 billion surplus. This fiscal restraint
reduced aggregate demand and deepened the Great Depression.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
award:
0.00 points
Which of the following is true regarding the "American Recovery and Reinvestment Plan"?
The massive 2009 stimulus package was designed to jump-start the recession-bound economy.
Critics argued that the massive deficits generated by President Obama's plan would undermine
America's financial stability.
Critics argued that in order to pay the deficits created by the plan, the government would be forced to
raise taxes and cut spending, which would reverse the boost from the stimulus.
→
All of the choices are correct.
President Obama's 2009 stimulus package was designed to jump-start the recession-bound economy. Critics argued
about both the content and size of that package and said it would ultimately do more harm than good. Those critics
asserted that the massive deficits generated by Obama's "American Recovery and Reinvestment Act" would
undermine America's financial stability because eventually taxes would have to be raised or government
expenditures would need to be cut to pay off the deficits incurred.
Multiple Choice
Difficulty: 1 Easy
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
11/12/2013 9:31 AM
Assignment Print View
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How did the impact of President Obama's fiscal stimulus in 2009 compare to the impact of President Bush's tax cuts and
increased defense spending on the structural deficit?
President Obama's effect on the structural budget deficit was much lower than President Bush's.
→
President Obama's effect on the structural budget deficit was much higher than President Bush's.
President Obama and President Bush's impacts on the structural budget deficit were about equal.
The impact on the structural budget was not measured—only the cyclical impact of these policies.
A structural deficit or surplus comes from fiscal policy at full employment
from the economy's influence away from full employment.
Multiple Choice
Difficulty: 1 Easy
, and a cyclical deficit or surplus comes
Learning Objective: 12-01 The
origins of cyclical and structural
deficits.
award:
0.00 points
According to the In the News article in the text titled "Deficit Outlook Darkens," the Congressional Budget Office (CBO)
predicts that by 2017 the national debt
will be
$15 trillion.
$18 trillion.
→
$21 trillion.
$28 trillion.
According to the article and certain assumptions, the Congressional Budget Office (CBO) predicts that by 2017 the
national debt
will be $21 trillion.
Multiple Choice
Difficulty: 2 Medium
Learning Objective: 12-02 How the
national debt has accumulated.
11/12/2013 9:31 AM