Macroeconomics Test -Fiscal Policy

A. the Federal government.
B. state and local governments working together.
C. state governments alone.
D. local governments alone.

2. Countercyclical discretionary fiscal policy calls for:

A. surpluses during recessions and deficits during periods of demand-pull inflation.
B. deficits during recessions and surpluses during periods of demand-pull inflation.
C. surpluses during both recessions and periods of demand-pull inflation.
D. deficits during both recessions and periods of demand-pull inflation.

3. If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

A. increasing government spending by $4 billion.
B. increasing government spending by $40 billion.
C. decreasing taxes by $4 billion.
D. increasing taxes by $4 billion.

4. Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

A. The Federal government reduces the public debt.
B. a reduction in agricultural subsidies and veterans’ benefits.
C. a postponement of a highway construction program.
D. a reduction in Federal tax rates on personal and corporate income.

5. An appropriate fiscal policy for severe demand-pull inflation is:

A. an increase in government spending.
B. depreciation of the dollar.
C. a reduction in interest rates.
D. a tax rate increase.

6. A major advantage of the built-in or automatic stabilizers is that they:

A. simultaneously stabilize the economy and reduce the absolute size of the public debt.
B. automatically produce surpluses during recessions and deficits during inflations.
C. require no legislative action by Congress to be made effective.
D. guarantee that the Federal budget will be balanced over the course of the business cycle.

7. The Federal budget deficit is found by:

A. subtracting government tax revenues plus government borrowing from government spending in a particular year.
B. subtracting government tax revenues from government spending in a particular year.
C. cumulating the differences between government spending and tax revenues over all years since the nation’s founding.
D. subtracting government revenues from the noninvestment-type government spending in a particular year.

8. The Social Security trust fund currently is in:

A. deficit, and it inclusion in the Federal budget increases the stated size of the budget deficit.
B. deficit, and it inclusion in the Federal budget reduces the stated size of the budget deficit.
C. surplus, and its inclusion in the Federal budget reduces the stated size of the budget deficit.
D. surplus, and it inclusion in the Federal budget increases the stated size of the Federal budget deficit.

9. Which of the following best describes the idea of a political business cycle?

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.

10. The crowding-out effect of expansionary fiscal policy suggests that:

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. saving is increasing at the expense of investment.

11. The public debt is held as:

A. U.S. securities, corporate bonds, and common stock.
B. Federal Reserve Notes.
C. U.S. gold certificates.
D. Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

12. Suppose the Federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government’s public debt would have:

A. increased by $50 billion.
B. increased by $150 billion.
C. decreased by $200 billion.
D. decreased by $150 billion.

13. The most likely way the public debt burdens future generations is by:

A. reducing the current level of investment.
B. causing future unemployment.
C. causing deflation.
D. reducing real interest rates.

14. Which of the following is the best example of public investment?

A. salaries of Senators and Representatives
B. government expenditures on food stamps
C. construction of highways
D. funding of regulatory agencies.

15. Which is a problem of fiscal policy?

A. Time lags.
B. Crowding out of private investment..
C. Large public debt causes higher interest rates and a stronger U.S. dollar.
D. All are potential problems of fiscal policy.

Answers: