Which of the following is most likely to reduce a federal budget surplus?
  • Greater government expenditure or lower taxes.
  • The federal government.
  • A recession.
  • . Less government expenditure and higher taxes.
Debt accumulation by the U.S. government in the 1980s
  • Decrease the money supply.
  • Federal revenues minus federal expenditures at full employment under current fiscal policy.
  • Equals the dollar amount of outstanding U.S. Treasury bonds.
  • Exceeded the debt the country had accumulated over the preceding 200 years.
A decrease in private sector borrowing and spending caused by increased government borrowing is
  • College financing.
  • Make budget surpluses larger.
  • . Crowding out.
  • The crowding out of private sector output.
Crowding in is the result of
  • Cyclical unemployment.
  • Public sector goods.
  • Falling interest rates.
  • Foreign households.
Which of the following is an appropriate fiscal policy prescription for the government to follow?
  • The bailout of failed savings and loan associations.
  • Deficit reduction when there is excess AD.
  • A higher inflation rate and a lower unemployment rate.
  • The structural deficit decreases.
Suppose the economy is at a full-employment GDP of $1 trillion and the tax revenue received by the federal government is always one-fifth of GDP. If planned government expenditure is $300 billion, the structural
  • Defense spending.
  • Deficit is $100 billion.
  • Structural and cyclical deficits.
  • The federal government.
If full-employment output exceeds equilibrium output, greater deficit spending will result in
  • Smaller recessionary gap.
  • On the production possibilities curve.
  • Rise at a decreasing rate.
  • Greater government expenditure or lower taxes.
All of the following contribute to greater deficits when unemployment rises and reduce the deficit during an inflationary gap except for
  • U.S. exports.
  • A recession.
  • Crowding in.
  • Defense spending.
Interest payments on the national debt
  • The accumulation of all annual deficit and surplus flows.
  • Are a redistribution of income from taxpayers to bondholders.
  • The rate of economic growth will decline, ceteris paribus.
  • The federal government balanced its budget.
External debt of the United States refers to
  • Interest payments on the national debt.
  • . Less government expenditure and higher taxes.
  • Greater government expenditure or lower taxes.
  • U.S. government debt held by foreigners.
If full-employment income and equilibrium income are equal for a country, then a tax cut will result in
  • Fiscal policy.
  • College financing.
  • Excess AD.
  • Fell by $25 billion.
The national debt is
  • College financing.
  • The accumulation of all annual deficit and surplus flows.
  • Federal revenues minus federal expenditures at full employment under current fiscal policy.
  • Equals the dollar amount of outstanding U.S. Treasury bonds.
Which of the following is not an explanation of why the Gramm-Rudman-Hollings Act proved inadequate in reducing the deficit?
  • . Deficit ceiling.
  • A smaller level of aggregate demand
  • Congress controls only the cyclical portion of government spending.
  • Is the 12-month period used for federal government accounting purposes.
An opportunity cost that occurs because of increased government spending is
  • The crowding out of private sector output.
  • The budget surplus would get smaller.
  • When the debt-financed activity takes place.
  • The economy is at full employment.
Which of the following is an argument against balancing the federal budget?
  • Crowding in and private sector output would increase.
  • Doing so may prevent the government from pulling the economy out of recession.
  • Corporate and individual income taxes.
  • A higher inflation rate and a lower unemployment rate.
The national debt increased by nearly $2 trillion in the 1980s because of all of the following except
  • The foreign sector.
  • College financing.
  • Debt refinancing.
  • . Discretionary fiscal spending.
The use of government taxes and spending to alter economic outcomes is known as
  • U.S. exports.
  • Debt refinancing.
  • Fiscal policy.
  • The debt to the GDP.
When there is excess aggregate demand, the appropriate fiscal policy would be for the government to
  • . Discretionary fiscal spending.
  • Make budget surpluses larger.
  • The idea of opportunity cost.
  • Cyclical deficit is $80 billion.
In order to reduce the U.S. debt
  • The government should spend less than it collects in tax revenues.
  • In a booming economy, taxpayers move into higher tax brackets, which restrains their spending.
  • Are a redistribution of income from taxpayers to bondholders.
  • U.S. government debt held by foreigners.
Uncontrollable government spending includes
  • When the debt-financed activity takes place.
  • The idea of opportunity cost.
  • Interest rates rise.
  • Interest payments on the national debt.
Foreign households and institutions hold approximately _____ percent of the U.S. national debt.
  • 31
  • 24
  • Deficit reduction when there is excess AD.
  • Structural and cyclical deficits.
If there was a federal budget surplus and the government decided to either increase spending or decrease taxes
  • The government is running a cyclical deficit.
  • When the economy goes into recession.
  • The budget surplus would get smaller.
  • On the production possibilities curve.
The U.S. private sector holds about _____ percent of outstanding U.S. Treasury bonds.
  • Foreign households.
  • Fiscal policy.
  • The Revolutionary War.
  • 24
Automatic stabilizers tend to stabilize the level of economic activity because they
  • Help to moderate the extremes of the business cycle.
  • Exceeded the debt the country had accumulated over the preceding 200 years.
  • Increase spending during recessions and reduce spending during inflationary periods.
  • decrease in the deficit during an expansion.
When the U.S. Treasury issues new bonds to replace bonds that have matured, it is engaging in
  • Defense spending.
  • Fiscal policy.
  • . Discretionary fiscal spending.
  • Debt refinancing.
Policies designed to pay off the national debt will result in:
  • A smaller level of aggregate demand
  • Internal debt.
  • Congress controls only the cyclical portion of government spending.
  • Automatic spending cuts.
The fiscal agent of the U.S. government is the
  • A recession.
  • College financing.
  • U.S. Treasury.
  • U.S. government debt held by foreigners.
Debt service
  • Tax hikes and/or spending cuts intended to reduce aggregate demand.
  • . Refers to the annual interest payments on the debt.
  • An excess of government revenues over government expenditures in a given time period.
  • Finances current expenditures that exceed current tax revenues.
The national debt
  • College financing.
  • Equals the dollar amount of outstanding U.S. Treasury bonds.
  • The federal government balanced its budget.
  • Exceeded the debt the country had accumulated over the preceding 200 years.
Crowding out is most likely to occur when the federal government
  • The bailout of failed savings and loan associations.
  • decrease in the deficit during an expansion.
  • When the economy goes into recession.
  • Runs a deficit and sells bonds to make up the difference.
According to Keynes, an unbalanced budget is appropriate in all of the following situations except when
  • Structural and cyclical deficits.
  • decrease in the deficit during an expansion.
  • The economy is at full employment.
  • The idea of opportunity cost.
At the time it occurs, external financing of the debt allows the economy to
  • Consume beyond the production possibilities curve.
  • A higher inflation rate and a lower unemployment rate.
  • When the debt-financed activity takes place.
  • Runs a deficit and sells bonds to make up the difference.
In contrast to the structural deficit, the cyclical deficit reflects
  • On the production possibilities curve.
  • Fluctuations in economic activity.
  • The economy is at full employment.
  • The crowding out of private sector output.
A progressive income tax system is particularly effective as an automatic stabilizer because
  • Decrease spending or increase taxes or both.
  • In a booming economy, taxpayers move into higher tax brackets, which restrains their spending.
  • Is not affected.
  • The crowding out of private sector output.
The largest single holder of the U.S. national debt after the U.S. government is
  • Debt refinancing.
  • The foreign sector.
  • College financing.
  • The debt to the GDP.
Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint?
  • Corporate and individual income taxes.
  • A higher inflation rate reduces the budget deficit.
  • Deficit reduction when there is excess AD.
  • . Less government expenditure and higher taxes.
Which of the following is the best indication that the government is pursuing restrictive fiscal policy?
  • The bailout of failed savings and loan associations.
  • Greater government expenditure or lower taxes.
  • Corporate and individual income taxes.
  • The structural deficit decreases.
Which of the following might encourage the government to let inflation rates rise?
  • decrease in the deficit during an expansion.
  • The government is running a cyclical deficit.
  • Greater government expenditure or lower taxes.
  • A higher inflation rate reduces the budget deficit.
The opportunity cost of the debt is
  • The same as financing government debt with taxes. D. Dependent on who buys the bonds.
  • An excess of government revenues over government expenditures in a given time period.
  • Less of an issue if the economy is below full employment since crowding out is less likely to occur.
  • Runs a deficit and sells bonds to make up the difference.
The debt would cease to grow if
  • The federal government balanced its budget.
  • The accumulation of all annual deficit and surplus flows.
  • The idea of opportunity cost.
  • The budget surplus would get smaller.
The fiscal year for the federal government begins on
  • Crowding in.
  • October 1.
  • Interest rates rise.
  • The foreign sector.
Which of the following is most likely to increase a federal budget surplus?
  • A higher inflation rate and a lower unemployment rate.
  • decrease in the deficit during an expansion.
  • Greater government expenditure or lower taxes.
  • Crowding in and private sector output would increase.
Which of the following is not true when the economy is fully employed and government bonds are sold to finance greater government spending?
  • The government is running a cyclical deficit.
  • Deficit reduction when there is excess AD.
  • A higher inflation rate reduces the budget deficit.
  • decrease in the deficit during an expansion.
Which of the following contributed to the increase in the national debt during the 1990s?
  • The government is running a cyclical deficit.
  • The bailout of failed savings and loan associations.
  • decrease in the deficit during an expansion.
  • The primary economic costs of the debt are being passed on to future generations.
Which of the following would occur if the federal government decided to use a budget surplus to reduce the existing debt?
  • Deficit reduction when there is excess AD.
  • The bailout of failed savings and loan associations.
  • Crowding in and private sector output would increase.
  • A higher inflation rate reduces the budget deficit.
A budget surplus is
  • An excess of government revenues over government expenditures in a given time period.
  • Increase spending during recessions and reduce spending during inflationary periods.
  • Tax hikes and/or spending cuts intended to reduce aggregate demand.
  • Equals the dollar amount of outstanding U.S. Treasury bonds.
Which of the following is not an automatic stabilizer?
  • Deficit reduction when there is excess AD.
  • Cyclical unemployment.
  • Defense spending.
  • The federal government.
U.S. Treasury bonds owned by U.S. households, institutions, and government entities are referred to as
  • Is the 12-month period used for federal government accounting purposes.
  • Internal debt.
  • . Deficit ceiling.
  • World War II.
If the total budget deficit is $200 billion and the deficit at full employment is $120 billion, then the
  • Cyclical unemployment.
  • The budget surplus would get smaller.
  • Cyclical deficit is $80 billion.
  • Smaller recessionary gap.
An increase in private sector borrowing and spending caused by decreased government borrowing is known as
  • Crowding in.
  • Reduces a budget surplus.
  • October 1.
  • The crowding out of private sector output.
An obligation to make future payment is
  • . A liability.
  • Falling interest rates.
  • Interest rates rise.
  • Fiscal policy.
Federal agencies hold roughly _____ percent of all outstanding Treasury bonds.
  • Fiscal policy.
  • 31
  • 16
  • . Crowding out.
If deficit spending does not contribute to public investment and crowds out private investment, then
  • The primary economic costs of the debt are being passed on to future generations.
  • The economy is at full employment.
  • The rate at which government spending can exceed government revenue.
  • The rate of economic growth will decline, ceteris paribus.
The U.S. government incurred a national debt for the first time during
  • Decrease the money supply.
  • Interest rates rise.
  • The Revolutionary War.
  • Fiscal policy.
Discretionary expenditures account for approximately
  • Interest payments on the national debt.
  • Fluctuations in economic activity.
  • One-fifth of the federal budget.
  • Any inflationary gap will become larger.
The cost of servicing the debt may increase if
  • Interest payments on the national debt.
  • The Revolutionary War.
  • Foreign households.
  • Interest rates rise.
If the economy is in a recession,
  • Federal revenues minus federal expenditures at full employment under current fiscal policy.
  • It is operating inside the production possibilities curve, and the opportunity cost of deficit spending is zero.
  • The same as financing government debt with taxes. D. Dependent on who buys the bonds.
  • The federal government balanced its budget.
Deficit spending results whenever the government
  • Finances current expenditures that exceed current tax revenues.
  • Exceeded the debt the country had accumulated over the preceding 200 years.
  • The rate of economic growth will decline, ceteris paribus.
  • The rate at which government spending can exceed government revenue.
The burden of the internal portion of the debt is incurred
  • When the debt-financed activity takes place.
  • The bailout of failed savings and loan associations.
  • Runs a deficit and sells bonds to make up the difference.
  • The crowding out of private sector output.
For the convenience of analyzing the part of the deficit that is sensitive to fiscal policy, the actual deficit is divided into which of the following components?
  • Rise at a decreasing rate.
  • Cyclical deficit is $80 billion.
  • Fluctuations in economic activity.
  • Structural and cyclical deficits.
When the Federal Reserve System buys bonds in the open market, the national debt
  • Is not affected.
  • Debt refinancing.
  • Decrease spending or increase taxes or both.
  • College financing.
Increased government purchases crowd out private purchases whenever the economy is
  • When the debt-financed activity takes place.
  • On the production possibilities curve.
  • Fiscal policy.
  • Corporate and individual income taxes.
In order to maintain a balanced budget every year, during a recession the government would have to
  • Decrease spending or increase taxes or both.
  • The budget surplus would get smaller.
  • decrease in the deficit during an expansion.
  • Is not affected.
Fiscal restraint is
  • Tax hikes and/or spending cuts intended to reduce aggregate demand.
  • The accumulation of all annual deficit and surplus flows.
  • An excess of government revenues over government expenditures in a given time period.
  • Are a redistribution of income from taxpayers to bondholders.
If the cyclical deficit shrank by $60 billion while the structural deficit increased by $35 billion, the total deficit
  • The debt to the GDP.
  • Rise at a decreasing rate.
  • The budget surplus would get smaller.
  • Fell by $25 billion.
If debt-financed less productive government spending crowds out more productive private investment, future generations will bear
  • The government is running a cyclical deficit.
  • Crowding in and private sector output would increase.
  • . Some of the burden of the debt due to lower productive capacity.
  • The rate at which government spending can exceed government revenue.
Spending for unemployment compensation and welfare benefits increase automatically
  • The bailout of failed savings and loan associations.
  • When the economy goes into recession.
  • Consume beyond the production possibilities curve.
  • On the production possibilities curve.
With greater deficit spending, ceteris paribus,
  • Any inflationary gap will become larger.
  • Are a redistribution of income from taxpayers to bondholders.
  • Risen in response to wars.
  • . Discretionary fiscal spending.
Which of the following is an automatic stabilizer that reduces tax receipts during a recession?
  • Corporate and individual income taxes.
  • The government is running a cyclical deficit.
  • Greater government expenditure or lower taxes.
  • The bailout of failed savings and loan associations.
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