CHAPTER 47
Fiscal Policy
MULTIPLE CHOICE
521.
a. actions taken by the Federal Reserve to change the interest rate.
b. actions taken by the Financial Accounting Standards Board to establish standards for
accountants.
c. actions taken by the Surgeon General to set standards for diet and exercise.
d. actions taken by the government involving spending and collection of revenues.
522. A government budget deficit is defined as
a. the amount that a government owes to bondholders.
b. the amount that a government refunds to taxpayers.
c. the amount the government spends in excess of revenues.
d. the amount the government collects in excess of expenditures.
523. A government transfer payment is defined as
a. when the government engages private contractors to provide a service previously
performed by government employees.
b. when the government borrows funds from private investors.
c. when the government pays money to individuals that is not a payment for a current good
or service.
d. when the government purchases goods and services from the business sector.
524. Which of the following would be considered a transfer payment?
a. purchases of oil for the strategic petroleum reserve.
b. purchases of military goods for the army.
c. payments to a private subcontractor providing services to the military.
d. payments to wheat farmers when wheat prices fall below $3.80 per bushel.
525. John Maynard Keynes is famous for
a. arguing that government should never intervene in the economy.
b. arguing that government should intervene in the economy only to protect private
property.
c. arguing that governments should focus on providing incentives to business to increase
aggregate supply.
d. for his focus on the role of aggregate demand in the problems of inflation and
unemployment.
526. The basic formula developed in the simplified Keynesian model is
a. raise taxes and lower spending to fight unemployment during recessions.
b. lower taxes and increase spending to fight unemployment during recessions.
c. raise taxes and increase spending to fight unemployment during recessions.
d. lower taxes and lower spending to fight unemployment during recessions.
527. The basic formula developed in the simplified Keynesian model is
a. raise taxes and lower spending to fight inflation during expansions.
b. lower taxes and increase spending to fight inflation during expansions.
c. raise taxes and increase spending to fight inflation during expansions.
d. lower taxes and lower spending to fight inflation during expansions..
528. A significant political problem hindering the implementation of Keynesian policies during a
recession is
a. reaching agreement on whose taxes should be raised.
b. reaching agreement on whose taxes should be cut.
c. reaching agreement on which government programs should be cut.
d. reaching agreement on reducing the size of the budget deficit.
529. The Keynesian model provides no simple fiscal solution to
a. a situation of high unemployment and low inflation.
b. a situation of low unemployment and high inflation.
c. a situation of high unemployment and high inflation.
d. a situation of low unemployment and low inflation.
530. The fiscal policy that faces the fewest political obstacles is
a. raising taxes.
b. cutting spending.
c. cutting military spending.
d. cutting taxes.
531. When military spending declines at the conclusion of a war, what usually happens?
a. there is a major economic expansion.
b. there is a recession.
c. there is an increase in inflation.
d. there is an increase in aggregate demand.
APPENDIX 47.1
Fiscal Policies of Presidents Clinton and Bush
MULTIPLE CHOICE
532. During the Clinton years (1993 to 2001),
a. the economy was characterized by a long period of stagnation.
b. the economy was characterized by a long period of rapid economic growth.
c. the economy was characterized by slow growth and stagnant wages during the first half
of the period and by rapid growth and rising wages in the second half.
d. the economy was characterized by rapid growth and rising wages during the first half of
the period and by slow growth and stagnant wages during the second half.
533. The economy went into a recession in March 2001, what policies did President Bush
implement in response?
a. tax cuts aimed primarily at middle class and low income consumers in order to stimulate
consumption.
b. tax cuts aimed primarily at wealth individuals in order to stimulate savings and
investment.
c. tax increases across all income groups in order to finance increased government
spending.
d. a sharp increase in all discretionary, nonmilitary spending.
534. What were some of the factors that led to a budget surplus toward the end of the Clinton
administration?
a. increased spending for education led to higher economic growth.
b. the government drastically reduced Social Security payments.
c. spending on infrastructure such as highways and airports led to higher economic growth.
d. most discretionary spending was frozen, while taxes increased with higher incomes
during the expansion.
APPENDIX 47.2
Fiscal Policies in Wars
MULTIPLE CHOICE
535. In World War II, government spending for the war
a. was approximately 4% of GDP.
b. was financed entirely by increased taxes.
c. was approximately 40% of GDP.
d. was financed entirely from the surplus accumulated during the Great Depression.