Question 1

A possible explanation for the persistence of the U.S.federal budget deficits is that

Accepted Answer

A)   it is easier politically to increase government spending than to decrease taxes
B)   it is easier politically to decrease government spending than to decrease taxes
C)   it is easier politically to increase government spending than to increase taxes
D)   the economy naturally tends toward recessions
E)   the economy naturally tends toward full employment

Question 2

As a result of an increased deficit associated with discretionary fiscal policy,

Accepted Answer

A)   both the interest rate and real output fall
B)   both the interest rate and nominal output rise
C)   the interest rate falls and real output rises
D)   the interest rate rises and real output falls
E)   nominal output rises,real output falls,and the interest rate rises

Question 3

The annual Economic Report of the President is written by

Accepted Answer

A)   the President
B)   Congress
C)   the Office of Management and Budget
D)   the Council of Economic Advisers
E)   the Secretary of the Treasury

Question 4

The national debt is

Accepted Answer

A)   a flow variable showing the amount by which the government's spending is greater than its revenues in a given year
B)   a stock variable showing the amount by which the government's spending is greater than its revenues in a given year
C)   a stock variable measuring the net accumulation of past deficits
D)   a flow variable measuring the net accumulation of past deficits
E)   none of the above

Question 5

If a federal budget deficit causes crowding out,

Accepted Answer

A)   real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because bondholders' saving declines
B)   real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because investment declines
C)   interest rates fall,reducing the burden of the debt
D)   interest rates fall,bringing the current deficit back down
E)   interest rates fall,so that decreases in investment and government purchases of goods and services exactly offset the expansionary effect of the deficit

Question 6

All of the following are possible implications of federal budget deficits except one.Which is the exception?

Accepted Answer

A)   crowding out
B)   increased interest rates
C)   inflation
D)   increased trade deficits
E)   depreciation of the dollar

Question 7

Between 1981 and 1996,

Accepted Answer

A)   the U.S.national debt increased from $1 trillion to $5 trillion
B)   the U.S.national debt doubled
C)   the U.S.national debt fell by 50 percent
D)   the U.S.federal deficit doubled
E)   the U.S.federal deficit tripled

Question 8

Continuing resolutions are legislative actions undertaken to balance the budget.

Accepted Answer

A) True 
 B)False

Question 9

If the U.S.government spent $20 million paying people to dig holes in 2005,and then spent $30 million paying the same people to fill the holes up again that same year,we would expect the net effect to be a(n)

Accepted Answer

A)   decrease in transfer payments
B)   increase in the budget deficit as transfer payments increased
C)   increase in the budget deficit as government purchases of goods and services increased by $50 million
D)   increase in the budget deficit as government purchases of goods and services increased by $30 million
E)   $10 million dollar increase in the budget deficit

Question 10

Cyclical budget deficits refer to

Accepted Answer

A)   the fact that deficits increase during expansions and decrease during contractions
B)   the fact that deficits increase during contractions and decrease during expansions
C)   the size of the deficit after the economy has gone through a complete business cycle
D)   the size of the deficit when the economy is at potential GDP
E)   none of the above

Question 11

Almost one-half of federal spending consists of cash and "in kind" payments to individuals.

Accepted Answer

A) True 
 B)False

Question 12

According to the functional finance budget philosophy,

Accepted Answer

A)   deficits should never be used to stimulate the economy
B)   automatic stabilizers should be eliminated
C)   the government budget should be whatever is necessary to have the economy operate at potential GDP
D)   each government spending program should be financed on the basis of its function
E)   the federal budget should be balanced in the long run

Question 13

If discretionary fiscal policy creates a federal budget deficit,the economy must be experiencing falling output.

Accepted Answer

A) True 
 B)False

Question 14

If for every dollar increase in farm subsidies the government decreased urban welfare payments by a dollar,we would expect the net effect to be

Accepted Answer

A)   an increase in the budget deficit because government spending has increased
B)   a decrease in the budget deficit because transfer payments are not included in the government's budget
C)   an increase in the budget deficit because transfer payments have increased
D)   an increase in the budget deficit because farm subsidies are transfer payments but urban welfare payments are not
E)   no change in the budget deficit

Question 15

As of 2004 the U.S.national debt was

Accepted Answer

A)   about $1 million
B)   about $1 billion
C)   $1 trillion
D)   $3 trillion
E)   $7 trillion

Question 16

The President's budget is presented to Congress each year

Accepted Answer

A)   in the Economic Report of the President
B)   in a report followed shortly by the Economic Report of the President
C)   at the beginning of the fiscal year
D)   in a form that must be voted up or down within 60 days
E)   and requires a two-third vote for ratification

Question 17

In 1981,policy makers in the Reagan administration predicted a balanced budget for the 1980s because

Accepted Answer

A)   the budget included a decrease in defense expenditures
B)   the budget included an increase in the tax rate
C)   the budget included an increase in unspecified government spending
D)   growth in GDP was expected to be large enough to lead to an increase in tax revenues despite the tax cut
E)   growth in GDP was expected to be small enough to require less government spending

Question 18

The difference between the federal budget deficit and the national debt is that the

Accepted Answer

A)   deficit is a stock and the debt is a flow
B)   deficit is a flow and the debt is a stock
C)   debt includes interest payments and the deficit does not
D)   deficit can be positive but the debt cannot
E)   debt can be negative but the deficit cannot

Question 19

A federal capital budget would include spending on buildings,highways,computers,and military equipment.

Accepted Answer

A) True 
 B)False

Question 20

It took more than 200 years for the federal debt to reach $1 trillion.

Accepted Answer

A) True 
 B)False

Exam 13: Federal Budgets and Public Policy

The national debt is

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Almost one-half of federal spending consists of cash and "in kind" payments to individuals.

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A possible explanation for the persistence of the U.S.federal budget deficits is that

Correct AnswerverifiedShow Answer

If the U.S.government spent $20 million paying people to dig holes in 2005,and then spent $30 million paying the same people to fill the holes up again that same year,we would expect the net effect to be a(n)

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All of the following are possible implications of federal budget deficits except one.Which is the exception?

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It took more than 200 years for the federal debt to reach $1 trillion.

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Between 1981 and 1996,

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The President's budget is presented to Congress each year

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As of 2004 the U.S.national debt was

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The annual Economic Report of the President is written by

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As a result of an increased deficit associated with discretionary fiscal policy,

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Cyclical budget deficits refer to

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If for every dollar increase in farm subsidies the government decreased urban welfare payments by a dollar,we would expect the net effect to be

Correct AnswerverifiedShow Answer

The difference between the federal budget deficit and the national debt is that the

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According to the functional finance budget philosophy,

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A federal capital budget would include spending on buildings,highways,computers,and military equipment.

Correct AnswerverifiedShow Answer

If discretionary fiscal policy creates a federal budget deficit,the economy must be experiencing falling output.

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In 1981,policy makers in the Reagan administration predicted a balanced budget for the 1980s because

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Continuing resolutions are legislative actions undertaken to balance the budget.

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If a federal budget deficit causes crowding out,

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