Week 6 - Quiz Review Question Preview (ID: 28812)


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A Federal budget deficit exists when:
a) Federal government assets are less than liabilities
b) Federal government spending exceeds tax revenues
c) Federal government spending is increasing
d) Federal government taxation is decreasing

The crowding-out effect works through interest rates to:
a) Increase the effectiveness of expansionary fiscal policy
b) Decrease the effectiveness of expansionary fiscal policy
c) Decrease the effectiveness of contractionary fiscal policy
d) Increase the effectiveness of contractionary fiscal policy

One timing problem with fiscal policy to counter a recession is an administrative lag that occurs between the:
a) Start of the recession and the time it takes to recognize that the recession has started
b) End of the recession and the time it takes to recognize that the recession has ended
c) Time fiscal action is taken and the time that the action has its effect on the economy
d) Time the need for the fiscal action is recognized and the time that the action is taken

One timing problem with fiscal policy to counter a recession is a recognition lag that occurs between the:
a) Start of the recession and the time it takes to recognize that the recession has started
b) End of the recession and the time it takes to recognize that the recession has ended
c) Time fiscal action is taken and the time that the action has its effect on the economy
d) Time the need for the fiscal action is recognized and the time that the action is taken

Which is regarded as an automatic stabilizer in the economy?
a) Interest rates
b) Exchange rates
c) The inflation rate
d) The progressive income tax

One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy:
a) Makes the actual budget a better reflection of the condition of the economy than the standardized budget
b) Does not produce a cyclical deficit as discretionary policy does
c) Is not subject to the timing problems of discretionary policy
d) Has a greater multiplier effect than discretionary policy

Which is an example of an automatic stabilizer? As real GDP decreases, income tax revenues:
a) Increase and transfer payments decrease
b) Decrease and transfer payments increase
c) And transfer payments decrease
d) And transfer payments increase

Automatic stabilizers smooth fluctuations in the economy because they produce changes in government's deficit that:
a) Help offset changes in GDP
b) Reinforce changes in GDP
c) Produce a cyclically-adjusted budget
d) Produce a standardized budget

As the economy declines, the collection of personal income tax revenues automatically falls. This relationship best describes how the progressive income tax system:
a) Increases crowding out in the economy
b) Provides built-in stability for the economy
c) Decreases real interest rates in the economy
d) Offsets the timing problem for fiscal policy

Which combination of fiscal policy actions would be most stimulative for an economy in a deep recession?
a) Increase taxes and government spending
b) Decrease taxes and government spending
c) Increase taxes and decrease government spending
d) Decrease taxes and increase government spending

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

Expansionary fiscal policy is so named because it:
a) involves an expansion of the nation's money supply.
b) necessarily expands the size of government.
c) is aimed at achieving greater price stability.
d) is designed to expand real GDP.

Contractionary fiscal policy is so named because it:
a) involves a contraction of the nation's money supply.
b) necessarily reduces the size of government.
c) is expressly designed to contract real GDP.
d) is aimed at reducing aggregate demand and thus achieving price stability.

Which are contractionary fiscal policies?
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 spending

Fiscal policy refers to the:
a) manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.
b) manipulation of government spending and taxes to achieve greater equality in the distribution of income.
c) altering of the interest rate to change aggregate demand.
d) fact that equal increases in government spending and taxation will be contractionary.

When changes to taxes and spending occur in the economy without explicit action by the Federal government, such policy is:
a) Cyclical
b) Variable
c) Discretionary
d) Nondiscretionary

Discretionary fiscal policy refers to:
a) any change in government spending or taxes that destabilizes the economy.
b) the authority that the President has to change personal income tax rates.
c) changes in taxes and government expenditures made by Congress to stabilize the economy.
d) changes in taxes and transfers that occur as GDP changes.

A budget surplus means that:
a) Government expenditures are greater than revenues in a given year
b) Government revenues are greater than expenditures throughout time
c) Government revenues are greater than expenditures in a given year
d) Government expenditures are falling and government revenues are rising

A person states that: A large public debt will bankrupt the United States government. An economist is likely to respond:
a) Yes, because a large public debt means that the United States government will not be able to meet its financial obligations
b) Yes, because this public debt will reduce our ability to borrow the necessary funds from foreign nations
c) No, because most of the public debt is held by foreign nations
d) No, because the government can refinance the public debt by selling new bonds

Which is an important consequence of the public debt of the United States?
a) It leads to fewer incentives to bear risk and innovate
b) It decreases the inequality in the distribution of income in the U.S
c) It transfers a portion of output from foreign nations to the U.S
d) It will threaten to bankrupt the Federal government

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