978-1259723223 Test Bank TBChap033 Part 10

subject Type Homework Help
subject Pages 9
subject Words 3360
subject Authors Campbell McConnell, Sean Flynn, Stanley Brue

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page-pf1
33-175
332.
Refer to the graph. The economy was initially in equilibrium at point 3, but then interest rates
increase by 4 percentage points because of government deficit
financing. The public spending,
however, improves business confidence and activity that exactly offsets the potential crowding-
out effect. This situation would result
in a new equilibrium at point
333.
Interest Rate
Id1
Id2
5%
$500
$600
4
600
700
3
700
800
2
800
900
1
900
1,000
page-pf2
The table gives data on interest rates and investment demand (in billions of dollars) in a
hypothetical economy. Using the Id1 schedule, assume that the government
needs to finance the
public debt and this public borrowing increases the interest rate from 3 percent to 4 percent. How
much crowding out of private investment will
occur?
334.
Interest Rate
Id1
Id2
5%
$500
$600
4
600
700
3
700
800
2
800
900
1
900
1,000
The table gives data on interest rates and investment demand (in billions of dollars) in a
hypothetical economy. Assume that the public debt is used to expand the
capital stock of the
economy and that, as a consequence, the investment-demand schedule changes from Id1 to Id2.
At the same time, the interest rate rises from 3
percent to 4 percent as the government borrows
money to finance the public debt. How much crowding out of private investment will occur in this
case?
page-pf3
33-177
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Blooms: Understand
Diff i cult y :
02 Medium
Learning Objective: 33-06 Discuss the size, composition, and consequences of the U.S.
public debt.
Test Bank: II
Topic:
The U.S. Public Debt
335.
The Social Security program is designed to pay
336.
Through the start of 2009, Social Security revenues exceeded payouts, and the excess
inflow was used to buy
337.
In the later part of 2009, something historic happened relative to Social Security; for the first
time,
page-pf4
33-178
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A. Social Security revenues became zero.
B. Social Security contributions fell short of payouts.
C.
Social Security payouts did not increase.
D.
the Social Security Trust Fund ran out of funds.
338.
A major concern with the Social Security trust fund is that
339.
Which of the following is not a similarity between Medicare and Social Security?
page-pf5
33-179
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic:
The U.S. Public Debt
True / False Questions
340.
Expansionary fiscal policy during a recession means cutting taxes, increasing government
spending, or taking both actions.
341.
A decrease in taxes is one way to pursue a contractionary fiscal policy because it will make
government revenues contract.
342.
The goal of expansionary fiscal policy is to rein in inflation.
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33-180
343.
If the government wants to reduce unemployment using fiscal policy, it may do so by
increasing government spending.
344.
Expansionary fiscal policy will tend to reduce the budget deficit.
345.
A decrease in government spending and a cut in taxes would be a pair of fiscal policies that
reinforce each other.
346.
The flexibility of the price level tends to dampen the multiplier effect of fiscal policy.
page-pf7
33-181
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
TRUE
347.
Built-in stability is exemplified by the fact that with a progressive tax system, net tax
revenues decrease when GDP decreases.
348.
If taxation becomes more progressive, the built-in stability in the economy will decrease.
349.
Transfer payments that increase as GDP falls are a type of automatic stabilizer in the
economy.
page-pf8
33-182
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Understand
Diffic ult y: 02 Medium
Learning Objective: 33-02 Explain the role of built-in stabilizers in moderating business
cycles.
Test Bank: II
Topic: Built-In Stability
350.
The key to assessing whether fiscal policy is expansionary or not is to observe the change in
the cyclically adjusted budget balance.
351.
If the cyclically adjusted budget has a zero deficit but the actual budget has a $100 billion
deficit, then that means that the government is pursuing an expansionary
fiscal policy.
352.
The actual and cyclically adjusted budgets will be equal when the economy is at full
employment.
page-pf9
33-183
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Diffic ult y: 02 Medium
Learning Objective: 33-03 Describe how the cyclically adjusted budget reveals the status
of U.S. fiscal policy.
Test Bank: II
Topic: Evaluating How Expansionary or Contractionary Fiscal Policy Is Determined
353.
If the cyclically adjusted budget deficit goes from 2 percent to 1 percent of GDP, then it
indicates that fiscal policy has turned more contractionary.
354.
The "stimulus package" that the government implemented in response to the Great Recession
of 200709 made the cyclically adjusted budget of the U.S. have a very
large positive balance in
that time period.
355.
The so-called recognition lag associated with fiscal policy is a result of how slowly the U.S.
Congress moves.
page-pfa
33-184
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 33-05 Discuss the problems that governments may encounter in
enacting and applying fiscal policy.
Test Bank: II
Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy
356.
The concept of a "political business cycle" implies a misuse of fiscal policy making it a
source of economic instability.
357.
The impact of an expansionary fiscal policy may be strengthened if it crowds out some
private investment spending.
358.
The so-called crowding-out effect refers to government spending crowding out private
investment spending.
page-pfb
33-185
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Test Bank: II
Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy
359.
The crowding-out effect will be minimal when the economy is in a severe recession.
360.
It is possible for an increase in government spending to encourage, instead of crowding out,
private investment.
361.
A budget deficit causes the government to issue or sell Treasury bonds.
362.
If the budget deficit becomes smaller, then it will cause the public debt to also become
page-pfc
smaller.
363.
As of 2015, more than half of the total debt of the U.S. government was owed to foreigners.
364.
More than half of the U.S. public debt is owed to Americans.
365.
A large public debt would not bankrupt the Federal government, because it can refinance
the debt or increase taxes to pay the debt.
page-pfd
33-187
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Diff i cult y :
02 Medium
Learning Objective: 33-06 Discuss the size, composition, and consequences of the U.S.
public debt.
Test Bank: II
Topic:
The U.S. Public Debt
366.
The payment of interest on the public debt in the United States mildly increases income
inequality.
367.
The portion of the public debt owed to foreigners does not represent any real economic
burden to Americans because we received money from foreigners when we
incurred the debt.
368.
The Social Security program is a retirement system where payments to retirees come from
their previous contributions.
page-pfe
33-188
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
Diffic ult y: 02 Medium
Learning Objective: 33-06 Discuss the size, composition, and consequences of the U.S.
public debt.
Test Bank: II
Topic: The U.S. Public Debt
369.
When Social Security contributions have exceeded payouts in the past, the excess amounts
were used to help finance the Federal government's budget deficits.
370.
The Medicare trust fund is expected, if current flows continue, to be depleted within a
couple of decades.

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