Multiple Choice Identify the
choice that best completes the statement or answers the question.
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1.
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Regarding the federal budget, which of the following is true?
a. | A budget deficit will increase the public debt by the amount of the
deficit. | b. | The President determines final spending levels for each federal
department | c. | A deficit occurs for government when tax revenues exceed the sum of government
purchases and transfer payments | d. | Nearly 90% of government expenditures are
discretionary and can be changed from year-to-year. |
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2.
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The multiplier effect of a one billion dollar tax increase differs from the
multiplier effect of a one billion dollar decrease in government purchases because
a. | tax increases decrease the deficit; a decrease in government purchases does
not. | b. | households generally maintain their level of saving even though taxes
rise. | c. | households will partially pay for a tax increase by reducing their level of savings;
instead part is saved. | d. | there is no difference. They both have the same
effect. |
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Figure 202-001
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3.
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If the economy in figure 202-001 is currently operating at the y0
level of aggregate output, then the economy is in a ________ and an appropriate policy response would
be to _____________.
a. | recessionary gap; cut taxes. | b. | inflationary gap; cut
taxes. | c. | the recessionary gap; cut taxes. | d. | inflationary gap; raise
taxes. |
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4.
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Which of the following is an example of a fiscal policy action to fight
recession?
a. | decreasing government spending | b. | increasing government spending without changing
taxes | c. | increasing taxes without changing spending | d. | decreasing taxes and
spending by the same dollar amount. |
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5.
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The social security tax is placed
a. | entirely on the employer | b. | entirely on the employee | c. | half on the employer
and half on the employee | d. | property owners |
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6.
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Transfer payments are included in the government budget deficit but not included
in the government component of GDP.
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7.
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The federal budget deficit becomes __________ during recessions because
__________.
a. | smaller; transfer payments increase and tax revenues decline | b. | larger; transfer
payments increase and tax revenues decline | c. | larger; both transfer payments and tax revenues
increase | d. | smaller; both transfer payments and tax revenues increase | e. | smaller; both
transfer payments and tax revenues decrease |
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8.
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Because of automatic stabilizers, government budget deficits are
a. | positive during both expansions and contractions | b. | negative during both
expansions and contractions | c. | zero if averaged out over the entire business
cycle | d. | larger during expansions and smaller during contractions | e. | smaller during
expansions and larger during contractions |
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9.
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President Johnson's use of a temporary 10% "surcharge" on income
taxes is a classic example of:
a. | expansionary fiscal policy. | b. | contractionary fiscal
policy. | c. | expansionary monetary policy. | d. | contractionary monetary policy. Ans:
B |
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10.
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Time lags suggest that:
a. | increases in spending to fight a recessionary gap can be timed
correctly. | b. | increases in spending to fight a recessionary gay may occur too
early. | c. | increases in spending to fight a recessionary gap may occur too
late. | d. | none of the above is correct |
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11.
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The fact that income tax receipts fall during a recession because people’s
incomes are declining:
a. | makes the multiplier stronger. | b. | has no impact on the
multiplier. | c. | acts as an automatic stabilizer in reducing the adverse effect of the initial fall in
aggregate demand. | d. | acts as an automatic contractionary fiscal
policy. |
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12.
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The government budget balance equals:
a. | Taxes + Government purchases + Government transfers. | b. | Taxes -
Government purchases - Government transfers. | c. | Taxes + Government purchases + Government
transfers. | d. | Taxes + Government purchases - Government transfers. |
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13.
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If government spending increases and taxes decrease:
a. | implicit liabilities will increase. | b. | implicit liabilities will
decrease. | c. | the public debt will increase. | d. | the public debt will
decrease. |
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14.
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Suppose that U.S. debt is $7 trillion dollars at the beginning of the fiscal
year. During the fiscal year, the government spending and government transfers are $2 trillion and
tax revenues equal $1.5 trillion. At the end of the fiscal year, the debt is:
a. | $10.5 trillion. | b. | $6.5 trillion. | c. | $9
trillion | d. | $7.5 trillion. |
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15.
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Suppose that the budget deficit of a country remains level for five years. Which
of the following would be true concerning the fiscal stance of this government?
a. | The federal debt will remain constant. | b. | The federal debt will fall. | c. | The federal debt
will rise. | d. | The federal debt will either remain constant or fall. |
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16.
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Social security is an example of an intergenerational transfer program. Taxes
paid by workers this year are
a. | accumulated and invested, then paid as benefits in future years to those workers when
they retire. | b. | used to pay benefits to current retirees and other social security
beneficiaries. | c. | invested in stocks and bonds to help finance future retirements. | d. | used to pay off the
national debt. |
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