Question 1

An annually balanced budget policy requires that the federal budget be in balance on a year-to-year basis.

Accepted Answer

A) True 
 B)False

Question 2

Increasing aggregate demand in the vertical range of the aggregate supply curve will raise the price level and real output.

Accepted Answer

A) True 
 B)False

Question 3

Federal tax revenues fall during recessions.

Accepted Answer

A) True 
 B)False

Question 4

Answer the next two questions based upon the following diagram.
 2 to D1 B)  investment spending will increase from i1 to i2 C)  the interest rate will fall from i1 to i2 D)  the demand for money will shift from D1 to D2" class="answers-bank-image d-inline" rel="preload" >
-If the government borrows to finance the deficit:

Accepted Answer

A)   the demand for money will shift from D2 to D1
B)   investment spending will increase from i1 to i2
C)   the interest rate will fall from i1 to i2
D)   the demand for money will shift from D1 to D2E) B) and D)
F) None of the above

Question 5

Fiscal policy in 2008 and 2009 can accurately be described as:

Accepted Answer

A)   reckless
B)   neutral
C)   focused exclusively on balancing the budget
D)   expansionary in an effort to counter the recession
E)   making the government the employer of first resortF) A) and B)
G) C) and D)

Question 6

Answer the next six questions on the basis of the following diagram.
 4 to AD5 will: A)  increase real output B)  increase the price level, only C)  decrease the price level, only D)  increase both real output and the price level" class="answers-bank-image d-inline" rel="preload" >
-A rise in aggregate demand from AD4 to AD5 will:

Accepted Answer

A)   increase real output
B)   increase the price level, only
C)   decrease the price level, only
D)   increase both real output and the price levelE) B) and C)
F) B) and D)

Question 7

Answer the next six questions on the basis of the following diagram.
 1 to AD2: A)  the price level rises B)  full employment results C)  real output increases D)  taxes must have been raised and government spending reduced" class="answers-bank-image d-inline" rel="preload" >
-If aggregate demand moves from AD1 to AD2:

Accepted Answer

A)   the price level rises
B)   full employment results
C)   real output increases
D)   taxes must have been raised and government spending reducedE) A) and D)
F) B) and C)

Question 8

Federal debt per capita is:

Accepted Answer

A)   rising
B)   falling
C)   constant
D)   about $12 trillionE) A) and B)
F) A) and C)

Question 9

The Gramm-Rudman-Hollings Act successfully lowered federal budget deficits to zero.

Accepted Answer

A) True 
 B)False

Question 10

Use diagrams to illustrate how the crowding-out effect could raise interest rates and reduce investment spending.

Accepted Answer

The crowding-out effect occurs when incr...

Question 11

A structural deficit arises when the economy sinks into recession.

Accepted Answer

A) True 
 B)False

Question 12

Distinguish between the federal budget deficit and the federal debt.

Accepted Answer

The federal budget deficit and the feder...

Question 13

The notion of "twin deficits" refers to:

Accepted Answer

A)   the federal budget deficit causing a larger trade deficit
B)   both the federal government and the general public being heavily indebted
C)   having neither a bird in the hand nor one in the bush
D)   the coming crisis of the Social Security system and Medicare simultaneouslyE) B) and D)
F) All of the above

Question 14

The deficit reduction schedule of the Gramm-Rudman-Hollings Act of 1985 was rendered irrelevant by:

Accepted Answer

A)   the new presidential power of line-item veto
B)   the Tax Reform Act of 1986
C)   the collapse of Communism in the Soviet Union in 1991
D)   the Deficit Reduction Act of 1990E) B) and C)
F) A) and C)

Question 15

The Employment Act of 1946 provided a definitive and precise economic and legal obligation for the federal government to stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following schools of thought emphasizes aggregate demand management over aggregate supply management?

Accepted Answer

A)   Reaganomics
B)   Supply-side economics
C)   Blind-side economics
D)   Keynesian economics
E)   ObamacareF) A) and D)
G) A) and C)

Question 17

The crowding-out effect occurs when government deficit financing raises interest rates and lowers private investment spending.

Accepted Answer

A) True 
 B)False

Question 18

Answer the next six questions on the basis of the following diagram.
 5 to AD4 by: A)  incomes policies B)  tax increases C)  reductions in government spending D)  all of the above" class="answers-bank-image d-inline" rel="preload" >
-To counter inflation, policymakers might reduce aggregate demand from AD5 to AD4 by:

Accepted Answer

A)   incomes policies
B)   tax increases
C)   reductions in government spending
D)   all of the aboveE) B) and C)
F) None of the above

Question 19

Answer the next six questions on the basis of the following diagram.
 3 to AD4: A)  may have been caused by countercyclical policy directed at bringing about full employment B)  a tax increase and cuts in government spending C)  higher interest rates D)  will make the price level fall" class="answers-bank-image d-inline" rel="preload" >
-A shift in aggregate demand from AD3 to AD4:

Accepted Answer

A)   may have been caused by countercyclical policy directed at bringing about full employment
B)   a tax increase and cuts in government spending
C)   higher interest rates
D)   will make the price level fallE) A) and D)
F) A) and C)

Question 20

Which of the following items are concerns about the public debt?

Accepted Answer

A)   The debt burden may be shifted to future generations
B)   The government has borrowed heavily from the Social Security system
C)   It can worsen the trade deficit
D)   All of the aboveE) A) and D)
F) A) and B)

Exam 14: The Federal Debt and Deficit Crisis: The Limits of Fiscal Policy

The Employment Act of 1946 provided a definitive and precise economic and legal obligation for the federal government to stabilize the economy.

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Fiscal policy in 2008 and 2009 can accurately be described as:

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A structural deficit arises when the economy sinks into recession.

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Answer the next six questions on the basis of the following diagram. -A shift in aggregate demand from AD3 to AD4:

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Answer the next six questions on the basis of the following diagram. -To counter inflation, policymakers might reduce aggregate demand from AD5 to AD4 by:

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Which of the following items are concerns about the public debt?

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The crowding-out effect occurs when government deficit financing raises interest rates and lowers private investment spending.

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Federal tax revenues fall during recessions.

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Answer the next two questions based upon the following diagram. -If the government borrows to finance the deficit:

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An annually balanced budget policy requires that the federal budget be in balance on a year-to-year basis.

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The Gramm-Rudman-Hollings Act successfully lowered federal budget deficits to zero.

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The deficit reduction schedule of the Gramm-Rudman-Hollings Act of 1985 was rendered irrelevant by:

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Answer the next six questions on the basis of the following diagram. -If aggregate demand moves from AD1 to AD2:

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Federal debt per capita is:

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Use diagrams to illustrate how the crowding-out effect could raise interest rates and reduce investment spending.

Correct AnswerAnswered by ExamLex AIThe crowding-out effect occurs when incr...View AnswerShow Answer

Distinguish between the federal budget deficit and the federal debt.

Correct AnswerAnswered by ExamLex AIThe federal budget deficit and the feder...View AnswerShow Answer

Increasing aggregate demand in the vertical range of the aggregate supply curve will raise the price level and real output.

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The notion of "twin deficits" refers to:

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Which of the following schools of thought emphasizes aggregate demand management over aggregate supply management?

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Answer the next six questions on the basis of the following diagram. -A rise in aggregate demand from AD4 to AD5 will:

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Answer the next six questions on the basis of the following diagram. -A shift in aggregate demand from AD₃to AD₄:

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Answer the next six questions on the basis of the following diagram. -To counter inflation, policymakers might reduce aggregate demand from AD₅ to AD₄ by:

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Answer the next six questions on the basis of the following diagram. -If aggregate demand moves from AD₁ to AD₂:

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The crowding-out effect occurs when incr...
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The federal budget deficit and the feder...
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Answer the next six questions on the basis of the following diagram. -A rise in aggregate demand from AD₄to AD₅ will:

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