Tackle the Test: Multiple-Choice Questions

1. Question

   If government spending exceeds tax revenues, which of the following is necessarily true? There is a

   
   

   
   

   1. positive budget balance.

      
      
   
   

   2. budget deficit.

      
      
   
   

   3. recession.

      
      
   
   

   A.

   I only

   B.

   II only

   C.

   III only

   D.

   I and II only

   E.

   I, II, and III

   If government spending exceeds tax revenues, which of the following is necessarily true? There is a

2. Question

   Which of the following fiscal policies is expansionary?
   TaxesGovernment spending

   A.

   increase by $100 millionincreases by $100 million

   B.

   decrease by $100 milliondecreases by $100 million

   C.

   increase by $100 milliondecreases by $100 million

   D.

   decrease by $100 millionincreases by $100 million

   E.

   both (a) and (d)

   Which of the following fiscal policies is expansionary?

3. Question

   The cyclically adjusted budget deficit is an estimate of what the budget balance would be if real GDP were

   A.

   greater than potential output.

   B.

   equal to nominal GDP.

   C.

   equal to potential output.

   D.

   falling.

   E.

   calculated during a recession.

   The cyclically adjusted budget deficit is an estimate of what the budget balance would be if real GDP were

4. Question

   During a recession in the United States, what happens automatically to tax revenues and government spending?
   Tax revenuesGovernment spending

   A.

   increaseincreases

   B.

   decreasedecreases

   C.

   increasedecreases

   D.

   decreaseincreases

   E.

   decreasedoes not change

   During a recession in the United States, what happens automatically to tax revenues and government spending?

5. Question

   Which of the following is a reason to be concerned about persistent budget deficits?

   A.

   crowding out

   B.

   government default

   C.

   the opportunity cost of future interest payments

   D.

   higher interest rates leading to decreased long-run growth

   E.

   all of the above

   Which of the following is a reason to be concerned about persistent budget deficits?