Macroeconomics
1.
Quiz 9
Fiscal policy
Expansionary fiscal policy is so named because it:
a) involves an expansion of the nation's money supply.
b) necessarily expands the size of government.
c) is aimed at achieving greater price stability.
d) is aimed at increasing aggregate demand and thus expanding real GDP.
e) expands beyond national borders
2. A budget deficit means that:
a.
government revenues are greater than expenditures in a given year.
b.
government expenditures are greater than revenues in a given year.
c.
government expenditures are falling and revenues are rising.
d.
Federal government assets are less than liabilities.
3. If there is a deficit in the Federal budget, then an advocate of an annually balanced budget would call for a(n):
a. increase in government spending and/or a decrease in taxes
b. decrease in government spending and/or an increase in taxes
c. lower interest rates
d. higher public debt
e. world revolution
4. The US government purposely changed the economy's budget from a surplus of 2% of real GDP in 2000 to a deficit of
3.5% of real GDP in 2003. The government is engaging in a(n):
a) expansionary fiscal policy.
c) neutral fiscal policy.
b) contractionary fiscal policy.
d) high-interest rate policy.
5. Discretionary fiscal policy will stabilize the economy most when:
a.
deficits are incurred during inflations and surpluses during recessions.
b.
the budget is balanced each year.
c.
budget surpluses are continuously incurred.
d.
deficits are incurred during recessions and surpluses during inflations.
6. The major source of tax revenue for the Federal government is:
a. personal income taxes.
b. property taxes.
d. sales and excise taxes.
c. corporate income taxes.
e. property taxes
7. The government can finance budget deficit by
a. printing new money
b. borrowing the money from the general public
c. increasing taxes on corporate profits or personal incomes
d. all of the above
8. Which of the following best describes the built-in stabilizers as they function in the United States?
a. The size of the balanced-budget multiplier varies inversely with the level of GDP.
b. Tax collections automatically fall and transfers and subsidies automatically rise as GDP rises.
c. Tax collections and transfers and subsidies all do not vary with the level of GDP.
d. Tax collections rise while transfers and subsidies automatically decline as GDP rises.
9. Assume that the economy is booming, consumer spending is excessive, so that there is risk of demand-pull inflation.
Which of the following would be most in accord with appropriate government fiscal policy?
a) finance budget deficit by printing new money
b) an increase in the size of income tax exemptions for each dependent
c) passage of legislation providing for the construction of 8,000 new school buildings
d) an increase in soil conservation subsidies to farmers
e) an increase in Federal income tax rates and a cut in government spending
10. Suppose that the economy is in the midst of a recession. Which of the following policies represent active fiscal policy?
a) a Congressional proposal to incur a Federal surplus to be used for the retirement of public debt
b) a reduction in agricultural subsidies and veterans' benefits
c) a reduction in Federal tax rates on personal income and an increase in government expenditures
d) a cut in wages of government employees
e) a postponement of a highway construction program
11. The public debt is the:
a.
amount of U.S. paper currency in circulation.
b.
ratio of all past deficits to all past surpluses.
c.
total of all past deficits minus all past surpluses.
d.
difference between current government expenditures and revenues.
e.
total household debt
12. Use US Treasury site (www.treasurydirect.gov) to record the size of the total public debt. "A large public debt will
bankrupt the United States government because the United States government will not be able to meet its financial
obligations." Is large debt a problem? Why yes, why no?
13. What is a “flat tax”? List two advantages and two disadvantages of this type of tax over our current system. In your
opinion, should the US adopt a flat tax?
14. Find and enclose a recent news article related to current government fiscal policy or national debt. Comment briefly.