28) If tax revenues are $230 billion and the government’s outlays are $235 billion, then the
budget
A) deicit is $5 billion and government debt will remain the same.
B) surplus is $5 billion and government debt will increase by $5 billion.
C) deicit is $5 billion and government debt will increase by $5 billion.
D) deicit is $5 billion and government debt will decrease by $5 billion.
E) surplus is $230 billion and the budget deicit is $235 billion.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.1
Status: Old
AACSB: Analytical thinking
29) What two parts of the government determine the federal budget?
A) the Federal Reserve and the FOMC
B) the President and the Federal Reserve
C) the Congress and the Federal Reserve
D) the Congress and the President
E) the U.S. Treasury and the Federal Reserve
Skill: Level 1: Deinition
Section: Checkpoint 16.1
Status: Old
AACSB: Relective thinking
30) The federal budget is decided upon by the
A) President of the United States and the Federal Reserve system.
B) President of the United States and the United States Treasury.
C) President of the United States and the United States Congress.
D) United States Congress and the Federal Reserve System.
E) the United States Treasury alone.
Skill: Level 1: Deinition
Section: Checkpoint 16.1
Status: Old
AACSB: Relective thinking
11
31) Although ________ initially proposes and ultimately approves the budget, the discussion
and amendment process rests with ________.
A) Congress; the President
B) the Senate; the President
C) Congress; the Federal Reserve
D) the President; Congress
E) the U.S. Treasury; Congress
Skill: Level 1: Deinition
Section: Checkpoint 16.1
Status: Old
AACSB: Relective thinking
32) The federal budget
A) is required to balance by law.
B) can have a surplus but not a deicit.
C) can have a deicit but not a surplus.
D) can have a deicit or a surplus but cannot be balanced.
E) can have a deicit, a surplus, or a balance.
Skill: Level 1: Deinition
Section: Checkpoint 16.1
Status: Old
AACSB: Relective thinking
33) If we look at the federal government budget over the past 40 years we see that
A) most years the government budget has been balanced.
B) only occasionally has the budget been in deicit.
C) most years the budget has been in deicit.
D) the government has been running a budget deicit since 1997.
E) most years the budget balance has not been calculated.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.1
Status: Old
AACSB: Relective thinking
12
34) Since 2000, the U.S. government has generally had a government budget ________ and
so the national debt has ________.
A) surplus; decreased
B) surplus; increased
C) deicit; decreased
D) deicit; increased
E) deicit; not changed
Skill: Level 1: Deinition
Section: Checkpoint 16.1
Status: Old
AACSB: Relective thinking
35) The annual statement of the outlays, tax revenues, and surplus or deicit of the
government of the United States is the federal
A) surplus record.
B) deicit record.
C) budget.
D) spending.
E) debt to the public.
Skill: Level 1: Deinition
Section: Checkpoint 16.1
Status: Old
AACSB: Relective thinking
36) When government outlays are less than tax revenues, the government has
A) a budget with a positive balance.
B) a budget deicit.
C) a budget surplus.
D) a budget with a negative debt.
E) an illegal budget because outlays must exceed tax revenues.
Skill: Level 1: Deinition
Section: Checkpoint 16.1
Status: Old
AACSB: Relective thinking
13
37) National debt decreases in a given year when a country has
A) a budget deicit.
B) a balanced budget.
C) a budget supplement.
D) a budget surplus.
E) no discretionary iscal policy.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.1
Status: Old
AACSB: Relective thinking
16.2 Fiscal Stimulus
1) As contrasted to the mainstream view, Keynesian economists believe that ________ than
mainstream economists believe.
A) potential GDP is smaller
B) the burden of government debt on future generations is larger
C) the real GDP growth rate is higher
D) iscal stimulus is weaker
E) the multiplier efect is larger
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
2) As contrasted to the Keynesian view, mainstream economists believe that ________ than
Keynesian economists believe.
A) potential GDP is less important
B) any crowding out efect is smaller
C) the real GDP growth rate is larger
D) the efects from iscal stimulus are weaker
E) the multiplier efect is larger
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
14
3) Mainstream economists believe that Keynesian economists overstate the efect of the
multiplier efect. Which of the following statements would mainstream economists NOT
consider to be accurate?
A) Efects of a iscal stimulus are small and short lived.
B) Efects of a iscal stimulus are incapable of working fast enough to make a diference.
C) A iscals stimulus does not provide a ‘free lunch’ but does ‘crowd out’ private
consumption expenditure and investment.
D) A iscal stimulus results in bigger government, lower potential GDP, and slower real GDP
growth.
E) A iscal stimulus is a vital tool to ight recession and depression due to the multiplier
efect.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
4) Automatic stabilizers are deined as
A) actions taken by the President without Congressional consent to stabilize the economy.
B) actions taken by an act of Congress to stabilize the economy.
C) policy that stabilizes without the need for action by the government.
D) discretionary policy taken to stabilize the economy.
E) policy that has no multiplier efects.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
5) Automatic changes in tax revenues and expenditures that occur as a result of
luctuations in real GDP are referred to as automatic
A) taxes and expenditure.
B) discretionary taxes and expenditure.
C) government.
D) stabilizers.
E) discretionary policy.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
15
6) Fiscal policies that move the economy toward potential GDP without a change in policy
are called
A) routine stabilizers.
B) automatic stabilizers.
C) spending stabilizers.
D) economic stabilizers.
E) GDP stabilizers.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
7) An example of automatic iscal policy is
A) Congress passing a tax rate reduction package.
B) the federal government expanding spending at the Department of Education.
C) expenditure for unemployment beneits increasing as economic growth slows.
D) the Federal Reserve reducing interest rates as economic growth slows.
E) a change in taxes that has no multiplier efect.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
8) Which of the following is an example of an automatic iscal policy action?
A) increased unemployment beneit payments resulting from higher unemployment
B) an increase in spending on defense goods resulting from increased world tensions
C) an increase in the tax rate resulting from a desire to shrink the budget deicit
D) a decrease in the tax rate resulting from an efort to increase aggregate demand to
combat a recession
E) None of the above answers is correct.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
16
9) In an expansion, federal tax revenues increase proportionally more than real GDP
without the need for any government policy. This increase is an example of
A) discretionary monetary policy.
B) automatic monetary policy.
C) automatic iscal policy.
D) discretionary iscal policy.
E) the efect of deicit spending.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
10) Taxes that change with the level of real GDP and income are called
A) voluntary taxes.
B) GDP taxes.
C) induced taxes.
D) forced taxes.
E) lexible taxes.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
11) Induced taxes are deined as taxes
A) we are forced to pay for services from the government.
B) that vary with real GDP.
C) that are avoided with the use of legal tax shelters.
D) enacted by Congress that explicitly state the amount to be paid.
E) that rise in recessions and fall in expansions.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
17
12) Needs-tested spending is deined as
A) spending by Congress on its own perks of oice.
B) taxes paid by those qualiied by their income.
C) spending on programs for people qualiied to receive beneits.
D) spending by the President on the White House.
E) spending that increases in expansions and decreases in recessions.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
13) Needs-tested spending is best described as
A) spending on programs that entitle qualiied persons and businesses to receive beneits.
B) spending on programs that have been tested in some manner.
C) spending on programs that have proven over time to be sound investments.
D) spending on programs that are considered necessities (needed) according to surveys of
the public.
E) not spending at all, but a reference to the reliability of budget.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
14) Needs-tested spending
A) increases as real GDP increases.
B) increases as unemployment increases.
C) decreases as unemployment increases.
D) decreases in recession.
E) makes recessions more severe.
Skill: Level 1: Deinition
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
18
15) During a recession, unemployment beneit payments increase without the need for any
government action. This increase is an example of
A) discretionary monetary policy.
B) automatic monetary policy.
C) automatic iscal policy.
D) discretionary iscal policy.
E) government expenditure but it is not an example of either discretionary or automatic
policy.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
16) Needs-tested spending
A) increases in recessions and decreases in expansions.
B) decreases in recessions and increases in expansions.
C) does not change with the level of economic activity.
D) is always increasing regardless of whether we are in an expansion or a recession.
E) cannot be changed unless the government changes the spending laws.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
17) Needs-tested spending
A) is directing government spending and taxes to states that need the most help.
B) is giving tax cuts to wealthy people so they will increase their spending.
C) includes transfer payments such as food stamps and unemployment beneits.
D) includes homeland defense spending.
E) cannot be changed without changes in the laws.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
19
18) Automatic stabilizers include
A) changes in induced taxes and changes in needs-tested spending.
B) increases or decreases of tax rates and changes in needs-tested spending.
C) changes in induced taxes and changes in discretionary spending.
D) changes in discretionary spending and changes in needs-tested spending.
E) changes in the federal funds interest rate brought about by Fed policy.
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
19) In a recession, needs-tested spending ________ and induced taxes ________.
A) increases; increase
B) increases; decrease
C) decreases; increase
D) decreases; decrease
E) increase; do not change
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
20) An economic expansion leads to ________ needs-tested spending and ________ induced
taxes.
A) higher; lower
B) lower; higher
C) higher; higher
D) lower; lower
E) lower; no change in
Skill: Level 2: Using deinitions
Section: Checkpoint 16.2
Status: Old
AACSB: Relective thinking
20