Question 1

Automatic stabilizers have _____ effects during times of economic prosperity and _____ effects during times of economic downturn.

Accepted Answer

A)   contractionary; contractionary
B)   contractionary; expansionary
C)   expansionary; contractionary
D)   expansionary; expansionaryE) B) and C)
F) All of the above

Question 2

An automatic stabilizer:

Accepted Answer

A)   injects money into the economy during booms.
B)   extracts money from the economy during recessions.
C)   is exemplified by a program such as unemployment compensation.
D)   is exemplified by a program such as the Corps of Engineers dam-building program.E) None of the above
F) B) and D)

Question 3

The use of supply-side fiscal policy always requires a tradeoff between output and the price level.

Accepted Answer

A) True 
 B)False

Question 4

In recent years, countries such as China have been _____ U.S. debt as a way to keep their currencies from _____ against the U.S. dollar.

Accepted Answer

A)   buying; falling
B)   buying; rising
C)   selling; falling
D)   selling; risingE) B) and D)
F) A) and C)

Question 5

If the government borrows from the public, the quantity of publicly held bonds decreases.

Accepted Answer

A) True 
 B)False

Question 6

Interest on debt as a percentage of GDP was at its highest:

Accepted Answer

A)   during World War II.
B)   during the 1970s.
C)   during the late 1980s and early 1990s.
D)   in 2009.E) A) and D)
F) B) and C)

Question 7

Which action is an example of a supply-side fiscal policy?

Accepted Answer

A)   raising income taxes
B)   giving tax breaks to firms that undertake research and development
C)   increasing the money supply
D)   increasing government spending on MedicareE) A) and C)
F) B) and C)

Question 8

Contractionary fiscal policy:

Accepted Answer

A)   increases aggregate demand.
B)   decreases aggregate demand.
C)   increases aggregate supply.
D)   leaves aggregate demand unchanged.E) A) and B)
F) A) and C)

Question 9

If the economy is producing at an output level below full employment, the government should _____ spending and _____ taxes.

Accepted Answer

A)   decrease; increase
B)   decrease; decrease
C)   increase; decrease
D)   increase; increaseE) None of the above
F) B) and D)

Question 10

If interest rates rise, the burden of a nation's public debt _____ and the probability of a default _____.

Accepted Answer

A)   falls; falls
B)   falls; rises
C)   rises; falls
D)   rises; risesE) A) and C)
F) B) and D)

Question 11

Generational imbalance would not be a problem if:

Accepted Answer

A)   all government programs were financed on a pay-as-you-go basis.
B)   all government projects were short-term.
C)   all government projects were long-term.
D)   Social Security and Medicare were a larger percentage of the federal budget.E) A) and D)
F) A) and C)

Question 12

The U.S. Treasury sells $2 billion in bonds to the Federal Reserve. The Federal Reserve credits the Treasury's account by $2 billion. This exchange is best described as:

Accepted Answer

A)   financial impropriety.
B)   monetizing the debt.
C)   an activity that lies outside of the limits set by Congress.
D)   a method for reducing the money supply.E) None of the above
F) All of the above

Question 13

Which of the following is true regarding the possible effects of a tax change?

Accepted Answer

A)   Lower taxes on household income reduce aggregate supply.
B)   Higher tax rates on business profits encourage firms to boost production.
C)   Higher marginal tax rates tend to depress economic activity.
D)   Higher taxes on household income have no effect on the amount of labor households wish to supply.E) All of the above
F) A) and B)

Question 14

_____ are all examples of mandatory spending.

Accepted Answer

A)   Social Security, interest on the national debt, and Medicare
B)   National defense, income security, and veterans' benefits
C)   National defense, Social Security, and veterans' benefits
D)   Social Security, veterans' benefits, and MedicareE) All of the above
F) A) and D)

Question 15

Supply-side fiscal policies have the disadvantage of setting up a tradeoff between low inflation and low unemployment rates.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is (are)  true? I. Changes in tax rates only impact aggregate demand.
II)  According to the Laffer curve, if the tax rate is above 50%, lowering the tax rate will always raise tax revenue.
III)  A repeal of existing investment tax credits will lead aggregate supply to shift to the left.

Accepted Answer

A)   I and II only
B)   II and III only
C)   II only
D)   III onlyE) A) and D)
F) All of the above

Question 17

An investment tax credit for solar energy is a supply-side fiscal policy.

Accepted Answer

A) True 
 B)False

Question 18

Disposable income equals G + T.

Accepted Answer

A) True 
 B)False

Question 19

Spending money to battle flooding on the Mississippi River is an example of an automatic stabilizer.

Accepted Answer

A) True 
 B)False

Question 20

When the economy is growing steadily, rising tax revenues and declining transfer payments have a contractionary effect on the economy.

Accepted Answer

A) True 
 B)False

Exam 10: Fiscal Policy and Debt

If interest rates rise, the burden of a nation's public debt _ and the probability of a default _.

Correct Answer
verified

Spending money to battle flooding on the Mississippi River is an example of an automatic stabilizer.

Correct Answer
verified

Which of the following is true regarding the possible effects of a tax change?

Correct Answer
verified

When the economy is growing steadily, rising tax revenues and declining transfer payments have a contractionary effect on the economy.

Correct Answer
verified

Supply-side fiscal policies have the disadvantage of setting up a tradeoff between low inflation and low unemployment rates.

Correct Answer
verified

If the government borrows from the public, the quantity of publicly held bonds decreases.

Correct Answer
verified

Generational imbalance would not be a problem if:

Correct Answer
verified

If the economy is producing at an output level below full employment, the government should _ spending and _ taxes.

Correct Answer
verified

An investment tax credit for solar energy is a supply-side fiscal policy.

Correct Answer
verified

An automatic stabilizer:

Correct Answer
verified

Interest on debt as a percentage of GDP was at its highest:

Correct Answer
verified

Correct Answer
verified

Contractionary fiscal policy:

Correct Answer
verified

The U.S. Treasury sells $2 billion in bonds to the Federal Reserve. The Federal Reserve credits the Treasury's account by $2 billion. This exchange is best described as:

Correct Answer
verified

The use of supply-side fiscal policy always requires a tradeoff between output and the price level.

Correct Answer
verified

In recent years, countries such as China have been _ U.S. debt as a way to keep their currencies from _ against the U.S. dollar.

Correct Answer
verified

Automatic stabilizers have _ effects during times of economic prosperity and _ effects during times of economic downturn.

Correct Answer
verified

Disposable income equals G + T.

Correct Answer
verified

Which action is an example of a supply-side fiscal policy?

Correct Answer
verified

_____ are all examples of mandatory spending.

Correct Answer
verified

Exam 10: Fiscal Policy and Debt

If interest rates rise, the burden of a nation's public debt _____ and the probability of a default _____.

Correct AnswerverifiedShow Answer

Spending money to battle flooding on the Mississippi River is an example of an automatic stabilizer.

Correct AnswerverifiedShow Answer

Which of the following is true regarding the possible effects of a tax change?

Correct AnswerverifiedShow Answer

When the economy is growing steadily, rising tax revenues and declining transfer payments have a contractionary effect on the economy.

Correct AnswerverifiedShow Answer

Supply-side fiscal policies have the disadvantage of setting up a tradeoff between low inflation and low unemployment rates.

Correct AnswerverifiedShow Answer

If the government borrows from the public, the quantity of publicly held bonds decreases.

Correct AnswerverifiedShow Answer

Generational imbalance would not be a problem if:

Correct AnswerverifiedShow Answer

If the economy is producing at an output level below full employment, the government should _____ spending and _____ taxes.

Correct AnswerverifiedShow Answer

An investment tax credit for solar energy is a supply-side fiscal policy.

Correct AnswerverifiedShow Answer

An automatic stabilizer:

Correct AnswerverifiedShow Answer

Interest on debt as a percentage of GDP was at its highest:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Contractionary fiscal policy:

Correct AnswerverifiedShow Answer

The U.S. Treasury sells $2 billion in bonds to the Federal Reserve. The Federal Reserve credits the Treasury's account by $2 billion. This exchange is best described as:

Correct AnswerverifiedShow Answer

The use of supply-side fiscal policy always requires a tradeoff between output and the price level.

Correct AnswerverifiedShow Answer

In recent years, countries such as China have been _____ U.S. debt as a way to keep their currencies from _____ against the U.S. dollar.

Correct AnswerverifiedShow Answer

Automatic stabilizers have _____ effects during times of economic prosperity and _____ effects during times of economic downturn.

Correct AnswerverifiedShow Answer

Disposable income equals G + T.

Correct AnswerverifiedShow Answer

Which action is an example of a supply-side fiscal policy?

Correct AnswerverifiedShow Answer

_____ are all examples of mandatory spending.

Correct AnswerverifiedShow Answer

If interest rates rise, the burden of a nation's public debt _ and the probability of a default _.

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

If the economy is producing at an output level below full employment, the government should _ spending and _ taxes.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

In recent years, countries such as China have been _ U.S. debt as a way to keep their currencies from _ against the U.S. dollar.

Correct Answer
verified

Automatic stabilizers have _ effects during times of economic prosperity and _ effects during times of economic downturn.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified