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Exam 13: Fiscal Policy, Deficits, and Debt

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Question 191

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When government spending is increased, the amount of the increase in aggregate demand primarily depends on

A) the average propensity to consume.
B) the size of the multiplier.
C) income taxes.
D) exchange rates.

E) A) and C)
F) A) and B)

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Question 192

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You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion, (2) investment = $40 billion, (3) government purchases = $90 Billion, and (4) net export = $25 billion. If the full-employment level of GDP for this economy is $600 Billion, then what combination of actions would be most consistent with closing the GDP gap here?

A) increase government spending and taxes
B) decrease government spending and taxes
C) decrease government spending and increase taxes
D) increase government spending and decrease taxes

E) A) and B)
F) A) and C)

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Question 193

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The effect of expansionary fiscal policy is shown as a

$\begin{array} { | c | c | c | c | } \hline & \begin{array} { c } \text { Government } \\\text { Spending }\end{array} & \text { Tax Revenues } & \text { GDP } \\\hline \text { Year } 1 & \$ 800 & \$ 825 & \$ 4,000 \\\hline \text { Year } 2 & 850 & 850 & 4,200 \\\hline \text { Year } 3 & 900 & 875 & 4,350 \\\hline \text { Year } 4 & 950 & 900 & 4,500 \\\hline \text { Year 5 } & 1,000 & 925 & 4,600 \\\hline\end{array}$ The table contains budget information for a hypothetical economy. All data are in billions of dollars. In which year is there a balanced budget?

The Social Security program is designed to pay

Most economists believe that fiscal policy is

If the budget deficit becomes smaller, then it will cause the public debt to also become smaller.

It is possible for an increase in government spending to encourage, instead of crowding out, private investment.

(Last Word) What is the long-run financial problem for Medicare?

If the cyclically adjusted budget has a zero deficit but the actual budget has a $100 billion deficit, then that means that the government is pursuing an expansionary fiscal policy.

As measured by the cyclically adjusted budget, the U.S. government engaged in a contractionary fiscal policy in 2005 and 2006.

The crowding-out effect of expansionary fiscal policy suggests that

The so-called recognition lag associated with fiscal policy is a result of how slowly the U.S. Congress moves.

As of 2018, most of the U.S. federal debt was owed to

Transfer payments that increase as GDP falls are a type of automatic stabilizer in the economy.

$\begin{array} { | l | c | } \hline \text { Security } & \text { Amount (in Billions) } \\\hline \text { Treasury Bills } & \$ 220 \\\hline \text { Corporate Bonds } & 140 \\\hline \text { Treasury Notes } & 80 \\\hline \text { Corporate Stock } & 200 \\\hline \text { US Savings Bonds } & 60 \\\hline \text { Treasury Bonds } & 100 \\\hline\end{array}$ Other things equal, an increase of Treasury bonds from $100 billion to $120 billion in the economy would

Built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.

Which of the following nations had the highest public sector debt as a percentage of GDP in 2017?

An appropriate fiscal policy for severe demand-pull inflation is

Which of the following is not considered a legitimate concern of a large public debt?