Multiple Choice Questions

The government's fiscal policy options for ending severe demand-pull inflation include
  • consumers may hesitate to increase their spending because they believe that tax rates will rise again.
  • more difficult
  • a cut in government spending.
  • reducing government spending, increasing taxes, or both.
Match the following scenarios in which there are problems enacting and applying fiscal policy with the correct type of problem.a. To fight a recession, Congress has passed a bill to increase infrastructure spending—but the legally required environmental-impact statement for each new project will take at least two years to complete before any building can begin.
  • Recessionary gap
  • Operational lag
  • Administrative lag
  • Recognition lag
The problem of time lags in enacting and applying fiscal policy is that
  • reduction in investment spending caused by the increase in interest rates, arising from an increase in government spending
  • in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed
  • private borrowers may be willing to pay higher interest rates associated with financing the public debt.
  • government borrowing to finance the debt increases demand for funds and competes with private borrowing
The standardized budget measures what the Federal deficit or surplus would be if the economy reached the ___________ level of GDP.
  • full-employment
  • Recessionary gap
  • Recognition lag
  • the government would have to use tax revenues or go deeper into debt.
The Council of Economic Advisers (CEA) advises the President on
  • in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed
  • higher interest rates that can lower investment and economic growth.
  • politicians are more interested in reelection than in stabilizing the economy.
  • economic matters, and provides recommendations for discretionary fiscal policy action
If the standardized budget is balanced, the
  • government borrowing to finance the debt increases demand for funds and competes with private borrowing
  • assets held by these programs to help pay for future projected tax revenue shortfalls.
  • government is not engaging in either expansionary or contractionary policy.
  • politicians are more interested in reelection than in stabilizing the economy.
The ratchet effect makes anti-inflationary policy
  • more difficult
  • A progressive tax because it increases at an increasing rate as incomes rise, thus having more of a dampening effect on rising (or falling) incomes.
  • reducing government spending, increasing taxes, or both.
  • consumers may hesitate to increase their spending because they believe that tax rates will rise again.
Social Security and Medicare are "pay-as-you-go" plans. This means that
  • most of the current revenues from the Social Security tax are paid to current Social Security retirees.
  • government borrowing to finance the debt increases demand for funds and competes with private borrowing
  • in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed
  • assets held by these programs to help pay for future projected tax revenue shortfalls.
The crowding-out effect is the
  • economic matters, and provides recommendations for discretionary fiscal policy action
  • in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed
  • reduction in investment spending caused by the increase in interest rates, arising from an increase in government spending
  • government is not engaging in either expansionary or contractionary policy.
What type of tax system would have the most built-in stability?
  • reducing government spending, increasing taxes, or both.
  • a cut in government spending.
  • A progressive tax because it increases at an increasing rate as incomes rise, thus having more of a dampening effect on rising (or falling) incomes.
  • consumers may hesitate to increase their spending because they believe that tax rates will rise again.
If the annual interest payments on the debt sharply increased as a percentage of the GDP,
  • the absolute size doesn't tell you about an economy's capacity to repay the debt.
  • the government would have to use tax revenues or go deeper into debt.
  • private borrowers may be willing to pay higher interest rates associated with financing the public debt.
  • government borrowing to finance the debt increases demand for funds and competes with private borrowing
The distinction between the absolute and relative sizes of the public debt is important because
  • Its absolute dollar size and as a percentage of GDP
  • the absolute size doesn't tell you about an economy's capacity to repay the debt.
  • economic matters, and provides recommendations for discretionary fiscal policy action
  • the government would have to use tax revenues or go deeper into debt.
An internally held debt is one in which the
  • consumers may hesitate to increase their spending because they believe that tax rates will rise again.
  • bondholders live in the nation having the debt.
  • an increase in taxes
  • reducing government spending, increasing taxes, or both.
Use the aggregate expenditures model to show how government fiscal policy could eliminate either a recessionary expenditure gap or an inflationary expenditure gap.Given that full employment exists at $5,000, does a recessionary gap or inflationary gap exist?
  • Recognition lag
  • Recessionary gap
  • Administrative lag
  • Operational lag
A political business cycle is the concept that
  • politicians are more interested in reelection than in stabilizing the economy.
  • assets held by these programs to help pay for future projected tax revenue shortfalls.
  • government is not engaging in either expansionary or contractionary policy.
  • economic matters, and provides recommendations for discretionary fiscal policy action
For a person who wants to preserve the size of government, the fiscal options for ending severe demand-pull inflation would include
  • an increase in taxes
  • reducing government spending, increasing taxes, or both.
  • a cut in government spending.
  • A progressive tax because it increases at an increasing rate as incomes rise, thus having more of a dampening effect on rising (or falling) incomes.
Match the following scenarios in which there are problems enacting and applying fiscal policy with the correct type of problem.c. A sudden recession is recognized by politicians, but it takes many months of political deal making before a stimulus bill is finally approved.
  • Recessionary gap
  • Operational lag
  • Recognition lag
  • Administrative lag
What are the two ways to measure the public debt?
  • Its absolute dollar size and as a percentage of GDP
  • aging, and the age distribution, of the U.S. population.
  • the absolute size doesn't tell you about an economy's capacity to repay the debt.
  • Decreasing government spending.Raising taxes.
Social Security and Medicare trust funds are projected to be depleted by
  • taxes and government payouts
  • 2037 and 2017 respectively.
  • assets held by these programs to help pay for future projected tax revenue shortfalls.
  • most of the current revenues from the Social Security tax are paid to current Social Security retirees.
Match the following scenarios in which there are problems enacting and applying fiscal policy with the correct type of problem.b. Distracted by a war that is going badly, inflation reaches 8 percent before politicians take notice.
  • Operational lag
  • Administrative lag
  • Recognition lag
  • Recessionary gap
Consider the following statement: "Although fiscal policy clearly is useful in combating the extremes of severe recession and demand-pull inflation, it is impossible to use fiscal policy to fine-tune the economy to the full-employment, noninflationary level of real GDP and keep the economy there indefinitely."This statement recognizes that
  • in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed
  • the impact of fiscal policy will affect the economy differently depending on the timing of the policy and the severity of the situation
  • net tax revenue falls and transfer payments rise. Balancing the budget would require lowering transfer payments and raising taxes
  • government borrowing to finance the debt increases demand for funds and competes with private borrowing
Paying off an internally held debt would
  • not burden the economy as a whole.
  • selling new bonds to retire maturing bonds.
  • higher interest rates that can lower investment and economic growth.
  • may lower the dollar exchange rate
Refinancing of the public debt might drive up real interest rates because
  • government is not engaging in either expansionary or contractionary policy.
  • economic matters, and provides recommendations for discretionary fiscal policy action
  • government borrowing to finance the debt increases demand for funds and competes with private borrowing
  • higher interest rates that can lower investment and economic growth.
Social Security and Medicare trust funds are
  • most of the current revenues from the Social Security tax are paid to current Social Security retirees.
  • assets held by these programs to help pay for future projected tax revenue shortfalls.
  • government is not engaging in either expansionary or contractionary policy.
  • government borrowing to finance the debt increases demand for funds and competes with private borrowing
Which of the following would help a government reduce an inflationary output gap?
  • taxes and government payouts
  • Its absolute dollar size and as a percentage of GDP
  • Decreasing government spending.Raising taxes.
  • aging, and the age distribution, of the U.S. population.
For a person who thinks the public sector is too large, the fiscal options for ending severe demand-pull inflation would include
  • a cut in government spending.
  • A progressive tax because it increases at an increasing rate as incomes rise, thus having more of a dampening effect on rising (or falling) incomes.
  • reducing government spending, increasing taxes, or both.
  • an increase in taxes
Refinancing the public debt means
  • selling new bonds to retire maturing bonds.
  • Its absolute dollar size and as a percentage of GDP
  • higher interest rates that can lower investment and economic growth.
  • may lower the dollar exchange rate
Built-in, or automatic, stabilizers work by changing ______ so that GDP changes are reduced.
  • not burden the economy as a whole.
  • taxes and government payouts
  • aging, and the age distribution, of the U.S. population.
  • Decreasing government spending.Raising taxes.
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Multiple Choice Questions
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