Econ: Ch. 10

1. Fill in the blanks. In 2005, total federal spending was ________ and total spending was ________. $962 billion; 927 billion

$962 billion; 927 billion

$2,142 billion; $2,473 billion

$1,329 billion; $794 billion

A smaller fraction of GDP; a larger fraction of GDP

2. Which of the following is the largest component of federal spending?

Defense.

Entitlements and mandatory spending.

Discretionary spending.

Means-tested spending.

3. Changes in taxes and spending that happen without actions by the government are called:

Discretionary fiscal policy changes.

Automatic stabilizers.

Discretionary stabilizers.

Autonomous fiscal expenditures.

4. When the economy is in a recession, the government should:

Reduce expenditures and leave taxes constant in order to stimulate aggregate demand.

Increase government purchases or decrease taxes in order to increase aggregate demand.

Decrease government purchases or increase taxes in order to decrease aggregate supply.

Change spending and taxation but not aggregate demand or aggregate supply.

5. When is it a good idea to run a government budget deficit in order to offset the adverse effect of the business cycle and thus help to stabilize the economy?

During an expansion.

During a recession.

During a boom.

At any moment throughout the business cycle.

6. Fill in the blanks. The prospect of future deficits ___________ the ability of the U.S. government to conduct expansionary fiscal policy in the near future.

Enhances

Sharply limits

Has no effect on

May enhance or limit

7. The crowding out effect that can occur in the long run as a result of running budget deficits is an illustration of a key principle of economics. Which one?

The principle of opportunity cost.

The real-nominal principle.

The principle of diminishing returns.

The principle of voluntary exchange.

The marginal principle.

8. To replicate the behavior of the economy mathematically and statistically and to assist in developing economic forecasts, economists use:

Economic engineering.

New growth theory.

Econometric models.

Fiscal theory.

9. Supply-side economics is a school of economic thought that emphasizes:

The negative impacts of a budget deficit on the economy as a whole.

The role played by AD in determining the level of AS.

The role taxes play in the supply of output in the economy.

The impact of government spending on consumption.

10. When is the government able to buy back some of the bonds previously sold to the public?

When it runs a budget deficit.

When it runs a budget surplus.

When it runs a budget balance.

None of the above. Such purchase is impossible.

11. Refer to the diagram below. Which of the policies in the diagram is an ill-timed policy?

A.

B.

Both A and B.

Neither A nor B.

12. Some social programs are means-tested, which means that:

The spending on those programs has been matched by taxes that raise the revenue necessary to run them.

They are partly based on the income of the recipient.

The government has tested the program and knows it will accomplish its goals.

13. When did the United States government start to embrace an active fiscal policy?

During the Great Depression.

During the Kennedy administration.

During the Vietnam War Era.

During the Reagan administration.

14. The tax cuts enacted during 1981 were justified on the basis of:

Slowing the economy down.

Increasing the supply of output.

Increasing the demand for goods and services.

Helping households go through a boom period of economic activity.

15. What type of outlay is defense spending?

A part of discretionary spending.

An entitlement.

A part of mandatory spending.

A part of automatic spending.

16. Government policies that increase aggregate demand are called:

Economic policies.

Fiscal policies.

Expansionary policies.

Forward-looking policies.

17. Refer to the figure below. Which of the graphs is an example of stabilization polices, or actions to move the economy closer to full employment or potential output.

The graph on the left.

The graph on the right.

Both graphs.

Neither graph.

18. Federal government revenue, as a percent of GDP, was approximately 17.5% in 2005. What percent of GDP was the revenue collected from corporations?

Almost the entire 17.5%.

7.6%.

6.5%.

2.2%.