Chapter 12 - Fiscal Policy and the National Debt

1		Each of the following is a goal of fiscal policy except
			A)	a balanced budget.
			B)	relatively full employment.
			C)	price stability.
			D)	a satisfactory rate of economic growth.
2		Fiscal policy is conducted by
			A)	the president.
			B)	Congress.
			C)	the president and Congress.
			D)	the Federal Reserve.
			E)	the Office of Management and Budget.
3		Which is the most accurate statement?
			A)	Fiscal policy in the 1990s was very successful.
			B)	It is possible to have an inflationary gap and a deflationary gap simultaneously.
			C)	It is good fiscal policy to balance the budget virtually every year.
			D)	Although the budget deficit was reduced and then eliminated in the 1990s, Presidents George Bush and Bill Clinton do not deserve much of the credit.
4		Statement I. When there is a deflationary gap, equilibrium GDP is less than full employment GDP. Statement II. There is no known fiscal policy to eliminate a deflationary gap.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
5		When there is a recession liberals would call for ________ and conservatives would call for_______.
			A)	a tax cut, a tax cut
			B)	higher government spending, higher government spending
			C)	a tax cut, higher government spending
			D)	higher government spending, a tax cut
6		When MPC rises, the value of the multiplier
			A)	rises.
			B)	falls.
			C)	stays the same.
7		If investment falls by $20 billion and the MPC is .5, then GDP will
			A)	fall by $10 billion.
			B)	fall by $20 billion.
			C)	fall by $30 billion.
			D)	fall by $40 billion.
8		As the distance between equilibrium GDP and the full-employment GDP rises, the multiplier
			A)	rises.
			B)	falls.
			C)	stays the same.
9		Which is the most accurate statement about the automatic stabilizers?
			A)	They were all enacted under the New Deal.
			B)	They have been responsible for the prosperity of the 1990s by preventing recessions.
			C)	They moderate the business cycle by making recessions less severe and by damping down economic booms
			D)	They have been completely ineffective and should be scrapped.
10		James Baldwin earns $500 a week, brings home $400 a week after taxes, and spends $350 a week. If he loses his job and collects unemployment insurance benefits, what is your best guess as to how much he now spends each week.
			A)	$400
			B)	$350
			C)	$300
			D)	$200
			E)	0
11		Statement I. Discretionary fiscal policy is virtually the same as the workings of the automatic stabilizers. Statement II. The New Deal was largely discretionary fiscal policy.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
12		We have had budget deficits for decades until the year
			A)	1994.
			B)	1996.
			C)	1998.
			D)	2000.
13		At their peak our federal budget deficits reached almost
			A)	$100 billion.
			B)	$200 billion.
			C)	$300 billion.
			D)	$400 billion.
			E)	$500 billion.
14		Statement I. In 1997 a balanced budget amendment was ratified by the states and became part of the constitution. Statement II. Most economists favored passage of a balanced budget amendment to the constitution.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
15		What gives the president most of his power to shape fiscal policy?
			A)	his annual state of the union address
			B)	his annual budget
			C)	his veto power
			D)	his control of the federal bureaucracy