Overview
Chapter 11
Fiscal Policy and the Federal Budget
Multiple Choice
1. A balanced budget occurs when
a. the national debt is reduced to zero dollars.
b. a budget deficit during one year is matched by a budget surplus in the next year.
c. transfer payments equal tax revenues.
d. government expenditures equal tax revenues.
e. the deficit-GDP ratio equals one.
ANS: D PTS: 1 DIF: Moderate NAT: Analytic
LOC: Monetary and fiscal policy
2. A federal budget surplus
a. occurs when government expenditures exceed tax revenues.
b. occurs when tax revenues exceed government expenditures.
c. occurs when tax revenues exceed transfer payments.
d. occurs when monetary policy works in the opposite direction of fiscal policy.
e. is an impossibility.
ANS: B PTS: 1 DIF: Easy NAT: Analytic
LOC: Monetary and fiscal policy
3. A federal budget deficit
a. occurs when government expenditures exceed tax revenues.
b. occurs when tax revenues exceed government expenditures.
c. occurs when transfer payments exceed tax revenues.
d. will always result when Congress and the president cannot agree on expenditures.
e. occurs when monetary policy works in the opposite direction of fiscal policy.
ANS: A PTS: 1 DIF: Easy NAT: Analytic
LOC: Monetary and fiscal policy
4. Fiscal policy refers to
a. efforts to balance a government’s budget.
b. changes in the money supply to achieve particular economic goals.
c. changes in government expenditures and taxation to achieve particular economic goals.
d. the change in private expenditures that occurs as a consequence of changes in government spending.
ANS: C PTS: 1 DIF: Easy NAT: Analytic
LOC: Monetary and fiscal policy
5. Suppose Congress increases income taxes. This is an example of
a. expansionary fiscal policy.
b. expansionary monetary policy.
c. contractionary fiscal policy.
d. contractionary monetary policy.
ANS: C PTS: 1 DIF: Easy NAT: Analytic
LOC: Monetary and fiscal policy
6. Suppose Congress decreases income taxes. This is an example of
a. expansionary fiscal policy.
b. expansionary monetary policy.
c. contractionary fiscal policy.
d. contractionary monetary policy.
ANS: A PTS: 1 DIF: Easy NAT: Analytic
LOC: Monetary and fiscal policy
7. Expansionary fiscal policy actions include __________ government spending and/or __________ taxes, while contractionary fiscal policy actions include __________ government spending and/or __________ taxes.
a. increasing; increasing; decreasing; decreasing
b. decreasing; decreasing; increasing; increasing
c. increasing; decreasing; increasing; decreasing
d. decreasing; increasing; increasing; decreasing
e. increasing; decreasing; decreasing; increasing
ANS: E PTS: 1 DIF: Moderate NAT: Analytic
LOC: Monetary and fiscal policy
8. __________ flows from government to households.
a. A transfer payment
b. A tax payment
c. The Laffer Curve
d. Crowding out
ANS: A PTS: 1 DIF: Easy NAT: Analytic
LOC: Monetary and fiscal policy
9. An expansionary fiscal policy will
a. always result in a budget deficit.
b. always result in a budget surplus.
c. sometimes result in a budget deficit.
d. never result in a budget surplus.
e. More information is necessary to answer this question.
ANS: C PTS: 1 DIF: Moderate NAT: Analytic
LOC: Monetary and fiscal policy
10. When the economy is in a recessionary gap, Keynesian economists will often advocate expansionary policy measures. Why?
a. Keynesians believe the economy sometimes gets stuck in a recessionary gap and can’t get itself out.
b. Keynesians believe the economy itself sometimes takes too long to eliminate the recessionary gap and return to full-employment output.
c. Keynesians are generally in favor of increasing taxes.
d. a and b
e. a and c
ANS: D PTS: 1 DIF: Moderate NAT: Analytic
LOC: Monetary and fiscal policy
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