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Chapter 31

Countercyclical discretionary fiscal policy calls for:
deficits during recessions and surpluses during periods of demand-pull inflation.
is aimed at reducing aggregate demand and thus achieving price stability.
Contractionary fiscal policy is so named because it:
increases in government spending during recession and tax increases during inflation.
An economist who favored expanded government would recommend:
reducing government expenditures by $20 billion
If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50
billion by:
increasing taxes by $20 billion.
If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by:
an excess of government expenditures over tax receipts.
Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward:
A $10 billion increase in government spending.
Which of the following represents the most expansionary fiscal policy?
leftward shift demand curve
A contractionary fiscal policy is shown as a:
with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus
Built-in stability means that:
economy would become more stable.
If Congress adjusted the U.S. tax system so that the MPC was reduced, the:
the size of the federal government’s budgetary surplus or deficit when the economy is operating at full employment
The cyclically adjusted budget refers to:
The cyclically adjusted budget is less likely to show a deficit than is the actual budget.
The cyclically adjusted budget is less likely to show a deficit than is the actual budget. T or F
tax revenues exceed government expenditures
If the economy has a cyclically adjusted budget surplus, this means that:
cannot be determined whether the government engaged in expansionary or contractionary fiscal policy in 2009.
The actual budget deficit of the federal government in 2009 was about $1.4 trillion. On the basis of
this information, it:
neutral fiscal policy.
Suppose the government cuts taxes to keep the economy’s cyclically adjusted budget in balance when the economy is expanding. The government is engaging in a(n):
assume that government is having a contractionary effect on the economy.
If government increases the size of its cyclically adjusted surplus, we can:
budget surplus
The amount by which federal tax revenues exceed federal government expenditures during a particular year is the
large federal budget deficits.
Since 2002, the United States has had:
Fiscal policy swung from contractionary to expansionary in 2002. T or F
Bursting of the dot.com stock market bubble.
Which of the following did not contribute directly to the Great Recession?
stimulate aggregate demand and employment.
The American Recovery and Reinvestment Act of 2009 was implemented primarily to:
politicians will manipulate the economy to enhance their chances of being reelected.
The political business cycle refers to the possibility that:
increases in government spending financed through borrowing will increase the interest rate and
thereby reduce investment.
The crowding-out effect of expansionary fiscal policy suggests that:
An increase in government spending on infrastructure
Which of the following fiscal policy actions is most likely to increase aggregate supply?
Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.
The public debt is held as:
Demand-pull inflation.
Which of the following historically has not been a significant contributor to the U.S. public debt?
reducing national income
Recessions have contributed to the public debt by:
33 percent.
Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions?
larger than the portion held by federal agencies and the Federal Reserve.
The portion of the public debt held outside federal agencies and the Federal Reserve is:
In 2012, about ____ percent of the U.S. public debt was held by the federal government and Federal
reducing the current level of investment.
The most likely way the public debt burdens future generations, if at all, is by:
crowding-out effect.
The federal government has a large public debt that it finances through borrowing. As a result, real interest rates are higher than otherwise and the volume of private investment spending is lower. This illustrates the:
may be very small or conceivably zero when the economy is in a severe depression.
The real burden of an increase in the public debt:
Crowding-out of private investment
Which of the following is considered a legitimate concern of a large public debt?

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