A)

Treasury bills

B)

Treasury notes

C)

Treasury bonds

D)

U.S. savings bonds

2.

Which of the following statements is NOT a potential problem associated with cyclically balancing the federal budget?

A)

Different phases of the business cycle are not of equal length or severity.

B)

Forecasting the turning point of the economy is very difficult.

C)

Inflationary pressures can take hold, leading to the need later to enact extreme contractionary policy measures.

D)

Politicians find it difficult to cut spending.

3.

Which fiscal policy time lag can occur when the legislative process works slowly?

A)

decision lag

B)

implementation lag

C)

information lag

D)

recognition lag

4.

Which of the following statements about fiscal policy and aggregate supply is CORRECT?

A)

The focus of fiscal policy and aggregate supply is to minimize unemployment.

B)

Fiscal policies that influence aggregate supply don't always require tradeoffs between price levels and output.

C)

Fiscal policies that influence aggregate supply take less time to work than do demand-side fiscal policies.

D)

Fiscal policies that influence aggregate supply increase inflationary pressures as output expands.

5.

Transfer payments are:

A)

monies paid directly to individuals by the government.

B)

not part of the government budget.

C)

a vital part of discretionary fiscal policy.

D)

payments made to government officials who transfer them back to private companies.

6.

Automatic stabilizers include all of the following EXCEPT:

A)

unemployment compensation benefits.

B)

welfare payments.

C)

national defense spending.

D)

tax revenues.

7.

Which of the following regarding supply-side fiscal policy is INCORRECT?

A)

It tends to have a longer impact on the economy than demand-side policies.

B)

It is geared toward short-term increases in employment.

C)

It attempts to increase the long-run equilibrium level of GDP.

D)

It tends to lower prices in the economy.

8.

Which two important leakages helped reduce the real life spending multiplier during the stimulus that was implemented during 2009?

A)

exports and saving

B)

imports and saving

C)

exports and taxes

D)

imports and taxes

9.

_____ is the amount by which annual tax revenues exceed government expenditures.

A)

The budget deficit

B)

The budget surplus

C)

The public debt

D)

Government investment

10.

What approach to federal finance would you agree with if you were most concerned with the federal government's pursuit of fostering economic growth, stable prices, and full employment?

A)

annually balanced budget

B)

cyclically balanced budget

C)

functional finance

D)

trade-balanced budget

11.

According to the Laffer curve, what tax rate will maximize tax revenue?

A)

zero

B)

50%

C)

somewhere between zero and 100% but not necessarily 50%

D)

100%

12.

_____ is the part of the budget that works its way through Congress each year; it includes such programs as national defense, transportation, Medicaid, and education.

A)

Discretionary spending

B)

Mandatory spending

C)

Consumer spending

D)

Contractionary spending

13.

Which of the following policies do supply-side economists believe is the best for increasing the standard of living?

A)

redistributing income from the wealthy to the poor

B)

raising taxes to support government public works projects

C)

increasing investment in capital that boosts worker productivity

D)

increasing the supply of labor

14.

Suppose the government increases aggregate demand to a level that increases GDP above its long-run equilibrium level. What sequence of events would follow?

A)

Prices rise; GDP increases; workers demand higher wages; short-run aggregate supply shifts to the left; GDP drops

B)

Prices fall; workers receive lower wages; short-run aggregate supply shifts to the right; GDP rises

C)

Prices rise; GDP increases; workers demand higher wages; long-run aggregate supply shifts to the left; GDP falls

D)

Prices fall; workers receive lower wages; aggregate supply shifts to the right; GDP rises

15.

Figure: Laffer Curve 3

(Figure: Laffer Curve 3) A supply-side economist is advocating reducing income tax rates. She is probably assuming that the economy is at point ______ in the graph.

A)

a

B)

b

C)

c

D)

d

16.

When government spending increases, the aggregate demand curve shifts to the ________ and the multiplier effect is dampened by a ______ in the aggregate price level.

A)

right; fall

B)

right; rise

C)

left; fall

D)

left; rise

17.

Suppose in 2009 country X had tax revenues of $550 billion and government expenditures of $700 billion. In addition, as of the end of 2008, its national debt was $6.5 trillion. In 2009, country X had a ________ and at the end of 2009 a public debt of __________.

A)

deficit of $150 billion; $6.35 trillion

B)

surplus of $150 billion; $6.65 trillion

C)

deficit of $150 billion; $6.65 trillion

D)

surplus of $150 billion; $6.35 trillion

18.

The U.S. Treasury sells $2 billion in bonds to the Federal Reserve. The Federal Reserve credits the Treasury's account by $2 billion. This exchange is best described as:

A)

financial impropriety.

B)

monetizing the debt.

C)

an activity that lies outside of the limits set by Congress.

D)

a method for reducing the money supply.

19.

The budget philosophy closest in spirit to Keynesian economics is:

A)

the cyclically balanced budget.

B)

perpetual deficit spending.

C)

the annually balanced budget.

D)

functional finance.

20.

__________ government spending, _____ transfer payments, and ____ taxes are all examples of expansionary fiscal policy.

A)

Increasing; increasing; lowering

B)

Increasing; reducing; raising

C)

Reducing; increasing; lowering

D)

Reducing; increasing; raising

21.

The Laffer curve has which variables on its axes?

A)

price and quantity

B)

CPI and GDP

C)

tax rates and tax revenue

D)

aggregate expenditure and income

22.

Automatic stabilizers are designed so that as income falls:

A)

government spending falls so that budget is always balanced.

B)

spending rises to a degree that the recession automatically ends.

C)

the rate of spending decrease accelerates.

D)

spending does not fall as much as income.

23.

_____ are securities with maturities exceeding 10 years.

A)

Treasury bills

B)

Treasury notes

C)

Treasury bonds

D)

U.S. savings bonds

24.

If the economy is producing at an output level below full employment, the government should _____________ spending and ________ taxes.

A)

decrease; increase

B)

decrease; decrease

C)

increase; decrease

D)

increase; increase

25.

An automatic stabilizer:

A)

injects money into the economy during booms.

B)

extracts money from the economy during recessions.

C)

is exemplified by a program such as unemployment compensation.

D)

is exemplified by a program such as the Corps of Engineers dam-building program.

26.

The _____ lag can be expected to last 18 to 24 months.

A)

information

B)

recognition

C)

implementation

D)

decision

27.

The government can finance a budget deficit by:

A)

buying bonds from the Federal Reserve.

B)

buying bonds from the public.

C)

selling assets.

D)

buying assets.

28.

The largest source of federal government revenues is:

A)

corporate income taxes.

B)

Social Security taxes.

C)

individual income taxes.

D)

excise and estate taxes.

29.

Which of the following categories is an example of discretionary spending?

A)

Social Security

B)

Medicare

C)

food stamps

D)

hurricane relief funds

30.

Which measure is NOT a channel through which the government can influence aggregate demand?

A)

direct spending on goods and services

B)

transfer payments to households and firms

C)

taxes on households and firms

D)

regulation on businesses

31.

All of the following are considered expansionary fiscal policies EXCEPT:

A)

a reduction in unemployment compensation.

B)

a decrease in personal taxes.

C)

an increase in government spending.

D)

an increase in transfer payments.

32.

Which three U.S. presidents implemented well-known tax cuts designed to stimulate aggregate demand?

A)

Bill Clinton, Ronald Reagan, and George H. W. Bush

B)

John F. Kennedy, Ronald Reagan, and George W. Bush

C)

John F. Kennedy, Ronald Reagan, and Bill Clinton

D)

Bill Clinton, Ronald Reagan, and George W. Bush

33.

An increase in taxes:

A)

removes money from the economy's spending stream.

B)

stimulates aggregate demand.

C)

is the right policy prescription for fighting a recession.

D)

always helps balance the budget.

34.

Public debt held by foreigners is known as ________ debt.

A)

out-of-country

B)

internally held

C)

externally held

D)

improper

35.

In the United States, Social Security and Medicare are examples of:

A)

pay-as-you-go programs.

B)

generationally balanced programs.

C)

fiscally balanced programs.

D)

fiscal sustainability.

36.

Suppose the Treasury sells $10 billion worth of securities to the Social Security Administration and $15 billion to the general public. This sale added ________ billion to gross public debt and ________ billion to the debt held by the public.

A)

$15; $15

B)

$10; $15

C)

$15; $25

D)

$25; $15

37.

The advantage of automatic stabilizers over discretionary fiscal policy is that automatic stabilizers:

A)

have the full consent of the legislature.

B)

have been vetted and approved by the courts.

C)

do not require overt action by policymakers.

D)

take longer to take effect than fiscal policy.

38.

Which of the following is NOT involved with implementing fiscal policy in the United States?

A)

the executive branch

B)

the Senate

C)

the Supreme Court

D)

the House of Representatives

39.

When the government sells bonds to the public (domestic or foreign) in order to finance the government deficit:

A)

?T > 0.

B)

?B > 0.

C)

?M > 0.

D)

?A > 0.

40.

Suppose that at the end of 2014, the government holds debt of $150 billion, has collected tax revenue of $50 billion, and has spent $75 billion. The national debt at the beginning of 2015 is:

A)

$25 billion.

B)

$125 billion.

C)

$175 billion.

D)

$275 billion.

41.

According to public choice economists, the federal government has expanded because:

A)

the public likes to pay higher taxes to finance more programs.

B)

the federal government is efficient in its spending.

C)

deficit spending has reduced the perceived cost of current government operations.

D)

taxpayers pay the full cost today of current government operations.

42.

________ policy involves adjusting government spending and tax policies to move the economy toward full employment, economic growth, and low inflation.

A)

Goal-oriented fiscal

B)

Classical economic

C)

Monetary

D)

Discretionary fiscal

43.

The crowding out effect recognizes that if the government sells bonds to finance spending, it can cause interest rates to ___________ investment.

A)

fall, reducing

B)

fall, stimulating

C)

rise, reducing

D)

rise, stimulating

44.

The solution to simultaneous deflation and unemployment is to shift the:

A)

aggregate demand curve to the right.

B)

aggregate demand curve to the left.

C)

short run aggregate supply curve to the right.

D)

short run aggregate supply curve to the left.

45.

Suppose the economy is growing at 4% a year, inflation is measured at 0.5% a year, and the federal deficit is relatively high. An economist who suggests that we do nothing is advocating:

A)

an annually balanced budget.

B)

a cyclically balanced budget.

C)

a functional finance approach to federal budgeting.

D)

a full employment balanced budget.

46.

Which of the following statements regarding discretionary and mandatory spending is CORRECT?

A)

Discretionary spending is authorized by permanent laws.

B)

Mandatory spending may act as an automatic stabilizing force in the macroeconomy.

C)

Discretionary spending has steadily grown as a percentage of the federal budget since the 1960s.

D)

Mandatory spending programs include national defense, income security, and education.

47.

Contractionary fiscal policy is typically used to:

A)

fight inflation stemming from an overheated economy.

B)

fight recession due to deficient demand.

C)

restore the balance of payments.

D)

balance the federal budget.

48.

The _____ lag is the time policymakers must wait for economic data to be collected, processed, and reported.

A)

information

B)

recognition

C)

implementation

D)

decision

49.

Graphically, expansionary fiscal policy is displayed by a shift to the _____ in aggregate ______.

A)

right; supply

B)

right; demand

C)

left; supply

D)

left; demand

50.

In recent years, countries such as China have been _____ U.S. debt as a way to keep their currencies from _____ against the U.S. dollar.

A)

buying; falling

B)

buying; rising

C)

selling; falling

D)

selling; rising

51.

The progressive income tax and transfer payments are the two main:

A)

automatic stabilizers.

B)

monetary policy tools.

C)

long-run aggregate supply management tools.

D)

tools for balancing the budget.

52.

If an advance in technology shifts the long-run aggregate supply curve out:

A)

prices drop and output increases.

B)

prices increase and output decreases.

C)

prices remain stable and output decreases.

D)

None of the answers is correct.

53.

_____ has(have) an impact on both aggregate demand and aggregate supply.

A)

Encouragement of new technologies

B)

Tax rate reductions

C)

Investment in human capital

D)

Increasing transfer payments

54.

The _____ choice theory involves the economic analysis of public and political decision making.

A)

people's

B)

public

C)

private

D)

democratic

55.

During which decade did the U.S. public debt exceed its GDP?

A)

the 1930s

B)

the 1940s

C)

the 1970s

D)

the 2010s

56.

Contractionary fiscal policy:

A)

increases aggregate demand.

B)

decreases aggregate demand.

C)

increases aggregate supply.

D)

leaves aggregate demand unchanged.

57.

Supply-side fiscal policies include all of the following EXCEPT:

A)

investment in human capital.

B)

projects that include the encouragement of new technologies.

C)

increasing transfer payments.

D)

policies that encourage investment in research and development.

58.

If interest rates rise, the burden of a nation's public debt will _____ and it will be _____ difficult to service its debt.

A)

fall; less

B)

fall; more

C)

rise; less

D)

rise; more

59.

If the marginal propensity to consume is 0.9, by how much will $100 of government spending increase GDP?

A)

$90

B)

$100

C)

$1,000

D)

$900

60.

In a cyclically balanced budget approach to federal finance:

A)

the federal government would raise spending or reduce taxes during an economic expansion.

B)

a budget surplus would occur during a recession.

C)

surpluses from economic expansions would cancel out deficits from economic downturns.

D)

the federal budget would be balanced over a four-year presidential term.

61.

Public choice theorists primarily examine the:

A)

choices consumers make when in public.

B)

ability of government to be efficient.

C)

relationship between fiscal and monetary policies.

D)

relationship between economics and political decision making.

62.

In what year did the United States have a federal budget surplus?

A)

2000

B)

2004

C)

2006

D)

2010

63.

The real life spending multiplier for the 2009 stimulus package was between:

A)

0 and 1.

B)

1 and 2.

C)

2 and 3.

D)

3 and 4.

64.

As GDP decreases, tax revenues _____, causing a _______ to aggregate demand.

A)

decline; restraint

B)

decline; stimulus

C)

increase; restraint

D)

increase; stimulus

65.

Which of the following items does NOT constrain the federal budget?

A)

the mortgage interest rate

B)

the amount of bonds the public is willing to purchase

C)

the money supply

D)

tax receipts

66.

Suppose the economy is in a recession. To increase demand using discretionary fiscal policy, the government can:

A)

raise interest rates.

B)

raise taxes or shrink government spending.

C)

increase government spending or cut taxes.

D)

cut interest rates.

67.

Of the share of the U.S. national debt that is held by the public, __________ hold nearly _____________.

A)

foreigners; three times as much as do Americans

B)

foreigners; twice as much as do Americans

C)

Americans; twice as much as do foreigners

D)

foreigners; the same amount as do Americans

68.

Which of the following measures is an example of an expansionary fiscal policy?

A)

decreasing government spending

B)

reducing welfare payments

C)

increasing unemployment compensation

D)

raising taxes

69.

Generational imbalance would not be a problem if:

A)

all government programs were financed on a pay-as-you-go basis.

B)

all government projects were short-term.

C)

all government projects were long-term.

D)

Social Security and Medicare were a larger percentage of the federal budget.

70.

__________ are all examples of mandatory spending.

A)

Social Security, interest on the national debt, and Medicare

B)

National defense, income security, and veterans benefits

C)

National defense, Social Security, and veterans benefits

D)

Social Security, veterans benefits, and Medicare

71.

Which of the following items is NOT public debt?

A)

Treasury notes

B)

Treasury bonds

C)

U.S. dollars

D)

U.S. savings bonds

72.

___________ government spending, ___________ transfer payments, and ________ taxes all increase aggregate demand.

A)

Increasing;, increasing; transfer payments; increasing taxes

B)

Increasing; decreasing; decreasing

C)

Increasing; increasing; decreasing

D)

Decreasing; decreasing; increasing

73.

Which of the following is NOT a leakage that reduces the size of the spending multiplier?

A)

purchases of imports

B)

personal income tax

C)

savings

D)

personal investment in human capital

74.

Which of the following is NOT a form of U.S. public debt?

A)

Treasury bills

B)

Treasury notes

C)

stocks

D)

savings bonds

75.

The interest paid on internally held debt:

A)

is a real claim on our goods and services.

B)

is roughly 20% of the federal budget.

C)

is paid out to one group of Americans from the taxes collected from another group of Americans.

D)

is a real burden on the U.S. economy.

76.

The notion of functional finance says that:

A)

the economic function of the president is to maintain a balanced budget.

B)

the government should not focus on any deficits or surpluses caused by the budget and focus on maintaining the economy at full employment.

C)

the government should function as a financial leader in the economy.

D)

the government's budget should always be balanced over the course of the business cycle.

77.

Fiscal policy that focuses on shifting the long-run aggregate supply curve to the right is:

A)

aggregate shifts policy.

B)

contractionary policy.

C)

supply-side fiscal policy.

D)

consumption policy.

78.

The proposition that federal expenditures and taxes would have to be equal to each other every year is called the ________ approach.

A)

functional finance

B)

cyclically balanced budget

C)

annually balanced budget

D)

equality concept

79.

Using demand-side fiscal policy to stimulate aggregate demand when the economy is at full employment will primarily result in:

A)

unemployment.

B)

underemployment.

C)

inflation.

D)

a large economic expansion.

80.

Which of the following fiscal policies will increase aggregate supply?

A)

increasing tax rates on consumers

B)

increasing tax rates on businesses

C)

reducing the depreciation period for business equipment from five years to three years

D)

instituting more regulations on businesses

81.

Figure: Laffer Curve

(Figure: Laffer Curve) The graph shows a hypothetical Laffer curve. If the tax rate is 80%:

A)

the government should reduce the rate to about 50% to maximize tax revenue.

B)

the tax rate should be increased to 100% (all income taken in taxes) to maximize tax collection.

C)

the tax rate is at its optimal level.

D)

the tax rate should be reduced to zero to maximize tax revenue.

82.

Disposable income is equal to:

A)

Y – T.

B)

Y + T.

C)

T – Y.

D)

X – M.

83.

Rising productivity will drive increased economic growth and raise the average standard of living, shifting _____ curve to the _____.

A)

long-run aggregate supply; right

B)

long-run aggregate supply; left

C)

aggregate demand; left

D)

short run aggregate supply; left

84.

Without government spending, which of the following equations is TRUE?

A)

Y = C + S

B)

S – I = 1

C)

I – S = 1

D)

I + S = 1

85.

If an expansionary policy pushes output beyond the full employment level of GDP:

A)

the economy will undergo deflation.

B)

the natural rate of unemployment will fall.

C)

costs of production will drop.

D)

the short-run aggregate supply will eventually shift to the left.

86.

Public debt includes debt that is held by:

A)

the Social Security Administration.

B)

the Treasury Department.

C)

the Federal Reserve.

D)

foreign governments.

87.

Which of the following is NOT a fiscal policy timing lag?

A)

information lag

B)

crowding-out lag

C)

recognition lag

D)

implementation lag

88.

When the government's debt is monetized:

A)

banks buy bonds from the government.

B)

the government sells some of its assets.

C)

foreign citizens buy bonds from the government.

D)

the Federal Reserve buys bonds from the government.

89.

Which of the following statements does NOT describe a problem of balancing the budget over the business cycle?

A)

Lags in implementing policy make it difficult to achieve.

B)

Increasing taxes in boom years is politically difficult.

C)

Identifying the phases of the business cycle is not easy.

D)

Increasing taxes at the top of the cycle exacerbates inflation.

90.

Which economist promoted public choice theory?

A)

Robert Solow

B)

Adam Smith

C)

James Buchanan

D)

Arthur Laffer

91.

Which are examples of automatic stabilizers?

A)

income tax revenues and transfer payments

B)

sales tax rates and transfer payments

C)

sales tax revenues and income security

D)

sales tax rates and income security

92.

The Federal Reserve can purchase ____ to fund fiscal policy, resulting in _____.

A)

bonds; a decrease in the money supply

B)

bonds; an increase in the money supply

C)

money; a decrease in the bond supply

D)

money; an increase in the bond supply

93.

According to the government budget constraint equation, when the government runs a surplus, three things can happen: the money supply ______, the government ______ bonds, or the government ______ assets.

A)

rises; buys back; sells

B)

drops; buys back; buys

C)

drops; sells; sells

D)

drops; sells; buys

94.

When workers lose their job, they file for unemployment benefits, so government spending on such programs naturally rises during recessions. As the economy recovers and people go back to work, spending on unemployment programs shrinks. Which of the following is CORRECT?

A)

Unemployment benefit programs are an example of discretionary fiscal policy.

B)

Unemployment compensation is a form of automatic stabilizer.

C)

The spending on unemployment benefits is designed to increase short-run aggregate supply during recessions.

D)

Unemployment benefit programs are an example of supply-side policy.

95.

What type of government spending would be most effective in mitigating the crowding-out effect?

A)

education subsidies

B)

subsidies to private airports

C)

military spending

D)

increased salaries for the presidential staff

96.

In the history of the United States, public debt as a percentage of GDP:

A)

is fixed by law.

B)

tends to decrease during times of war.

C)

varies widely over time.

D)

tends to be zero percent.

97.

Which of the following illustrates the information lag?

A)

The economy is predicted to increase at 0.1% in July, but the numbers are revised in August to reflect an actual 2% decrease.

B)

Current data have been provided to policymakers, but they decide to wait and see what happens in the next quarter.

C)

The government responds to the 2% decrease in the economy, and private investment is crowded out of the investment market.

D)

The government decides not to respond to the 2% decrease in the economy because it is worried about the possibility of inflation.

98.

As market interest rates rise, the cost of the public debt:

A)

is unaffected, because the interest on the debt is fixed.

B)

falls, because investors will prefer safer financial assets such as Treasury bonds.

C)

rises, because the government must make larger interest payments.

D)

is unaffected until Congress votes to increase the interest paid.

99.

As GDP increases, tax revenues _____ and transfer payments _____.

A)

decline; decline

B)

decline; increase

C)

increase; decline

D)

increase; increase

100.

If the government borrows from the _____, the quantity of _____ will rise.

A)

public; publicly held bonds

B)

Federal Reserve; publicly held bonds

C)

public; money in circulation

D)

Federal Reserve; government assets

101.

Which of these countries has the largest public debt as a percentage of GDP?

A)

France

B)

Greece

C)

India

D)

Turkey

102.

______ is the total accumulation of past budget deficits less surpluses.

A)

The budget deficit

B)

The budget surplus

C)

The public debt

D)

Government spending

103.

The public debt is the:

A)

debt held by public corporations.

B)

total accumulation of past deficits less surpluses.

C)

amount by which government spending exceeds tax revenues in a given year.

D)

amount government agencies owe to other agencies.

104.

Reducing tax rates can _____ aggregate demand and __________ aggregate supply.

A)

increase; increase

B)

increase; decrease

C)

decrease; increase

D)

decrease; decrease

105.

When the economy is in a recession, welfare and unemployment compensation payments _______ and tax revenues ____________.

A)

rise; rise

B)

rise; decline

C)

decline; rise