Chapter 17
____ 1. The largest category of federal government expenditures is
a. national defense
b. interest on the federal debt
c. direct benefit payments to individuals
d. grants to states and localities
e. capital expenditures____ 2. The Budget of the United States Government is officially submitted by
a. the President to the Congress and contains proposals for government expenditures
b. the Congress to the President and contains proposals for government expenditures
c. the President to the Congress and contains proposals for tax increases
d. the Congress to the President and contains proposals for tax increases
e. the President to the Congress and it is reviewed by the Supreme Court____ 3. The annual Economic Report of the President is written by
a. the President
b. Congress
c. the Office of Management and Budget
d. the Council of Economic Advisers
e. the Secretary of the Treasury____ 4. Federal spending (including transfer payments), as a percent of GDP,
a.
has remained largely unchanged over the last 50 years
b.
has exceeded 10 percent only in wartime periods
c.
is less than half of state and local government spending
d.
has increased since 1921
e.
has greatly diminished in recent years
____ 5. Approximately __________ of the budget falls into expenditure categories that are determined by existing law.
a.
one-fourth
b.
one-third
c.
half
d.
two-thirds
e.
three-quarters
____ 6. The federal budget deficit becomes __________ during recessions because __________.
a.
smaller; transfer payments increase and tax revenues decline
b.
larger; transfer payments increase and tax revenues decline
c.
larger; both transfer payments and tax revenues increase
d.
smaller; both transfer payments and tax revenues increase
e.
smaller; both transfer payments and tax revenues decrease
____ 7. In Keynes� philosophy of government budgets,
a.
permanent deficits are desirable
b.
permanent surpluses are desirable
c.
the goal is to have a budget surplus
d.
surpluses are appropriate during recessions
e.
deficits are appropriate during recessions
____ 8. During a recession, higher welfare outlays
a.
increase the size of the budget deficit even if the government does not undertake discretionary fiscal policy
b.
decrease the size of the budget deficit regardless of the government's discretionary fiscal policy
c.
increase the size of the budget deficit only if the government undertakes discretionary fiscal policy
d.
decrease the size of the budget deficit only if the government undertakes discretionary fiscal policy
e.
have the same effect on the budget deficit as they do in times of expansion
____ 9. A disadvantage of having an annually balanced budget is that government spending would have to
a.
increase in recessions and decrease during expansions
b.
decline during a recession to offset the increase in tax revenues
c.
rise during a recession to match the increase in tax revenues
d.
rise during an expansion to offset the decline in tax revenues
e.
decline in a recession to match the decrease in tax revenues
____ 10. What has been the practical effect on macroeconomic policy of the huge U.S. federal budget deficits of the 1980s?
a.
The automatic stabilizers no longer functioned.
b.
It was tough gaining support to cut taxes or raise government purchases of goods and services during cyclical downturns.
c.
Monetary policy has become less useful than fiscal policy because the deficits are so large that they have a greater impact than the money supply.
d.
There has been more emphasis on fine-tuning the economy than there was previously.
e.
There is now a consensus among economists that a balanced budget amendment should be adopted.
____ 11. A possible explanation for the persistence of the U.S. federal budget deficits is that
a.
it is easier politically to increase government spending than to decrease taxes
b.
it is easier politically to decrease government spending than to decrease taxes
c.
it is easier politically to increase government spending than to increase taxes
d.
the economy naturally tends toward recessions
e.
the economy naturally tends toward full employment
____ 12. Actual federal budgets are not an accurate measure of discretionary fiscal policy because
a.
it is difficult to measure government spending accurately
b.
people cheat on their income taxes
c.
even without changes in fiscal policy, budget deficits increase during expansions
d.
even without changes in fiscal policy, budget deficits increase during recessions
e.
earlier administrations may have contributed to current budget deficits
____ 13. Bigger government budget deficits may be expected to increase interest rates because
a.
all of the following
b.
prices increase
c.
output increases
d.
the demand for money increases as income increases
e.
the government is selling more securities
____ 14. The crowding out of private investment is associated with
a.
a reduction in profitable investment opportunities due to a recession
b.
increased competition from foreign investors in U.S. markets
c.
higher interest rates resulting from a declining rate of saving
d.
higher interest rates resulting from increased borrowing by the federal government
e.
higher interest rates resulting from restrictive monetary policy
____ 15. What were the chief links between the U.S. federal budget deficit and the U.S. trade deficit during the 1980s?
a.
High U.S. interest rates led to a rise in the relative value of the dollar.
b.
High U.S. interest rates led to a decrease in the relative value of the dollar.
c.
U.S. interest rates fell relative to foreign rates and thus the dollar appreciated.
d.
The U.S. price level declined relative to that of foreign countries, causing U.S. interest rates to fall.
e.
The recessions of 1980 and 1981-1982 were the key links; recession widened the budget deficit and this caused the U.S. price level to fall, enabling foreigners to invest in U.S. assets.
____ 16. If action by the President and Congress reduces the federal government budget deficit, then interest rates will ________, the U.S. dollar will ________, and the foreign trade deficit will ________.
a.
increase; appreciate; increase
b.
increase; depreciate; increase
c.
decrease; appreciate; decrease
d.
decrease; depreciate; increase
e.
decrease; depreciate; decrease
____ 17. Social Security reforms adopted in 1983 included
a.
privatization of part of the program
b.
a cap on the Medicare tax rate
c.
expanding coverage to include government employees
d.
a reduction in benefits for retired workers with high incomes
e.
a higher tax rate, an expanded tax base, and an increase in the retirement age from 65 to 67
____ 18. The difference between the federal budget deficit and the national debt is that the
a.
deficit is a stock and the debt is a flow
b.
deficit is a flow and the debt is a stock
c.
debt includes interest payments and the deficit does not
d.
deficit can be positive but the debt cannot
e.
debt can be negative but the deficit cannot
____ 19. If the fraction of U.S. government securities held by foreigners increases,
a.
current consumption by U.S. citizens must fall
b.
current consumption by U.S. citizens can rise
c.
current consumption increases by U.S. citizens will be offset by equivalent decreases in future consumption when the debt is refinanced
d.
current consumption decreases by U.S. citizens will be offset by equivalent increases in future consumption when the debt is refinanced
e.
the debt will be less of a burden on our children
____ 20. Including the unfunded liabilities of government retirement programs like Social Security in the deficit would
a.
have little impact on the size of the deficit
b.
have little impact on the size of the national debt
c.
double the size of the national debt
d.
triple the size of the national debt
e.
quadruple the size of the national debt
20. ANS: DEconomics 1A Quiz 14 Answers
1. ANS: C
2. ANS: A
3. ANS: D
4. ANS: D
5. ANS: E
6. ANS: B
7. ANS: E
8. ANS: A
9. ANS: E
10. ANS: B
11. ANS: C
12. ANS: D
13. ANS: A
14. ANS: D
15. ANS: A
16. ANS: E
17. ANS: E
18. ANS: B
19. ANS: B
