ECON STUDY GUIDE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: I Topic: The U.S. Public Debt
141.
The public debt for the economy is
$540 billion.
$400 billion.
$580 billion.
D. $460 billion.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: I Topic: The U.S. Public Debt
Type: Table
142.
Other things equal, an increase of Treasury bonds from $100 billion to $120 billion in the economy would
A. not change the size of the public debt.
B. increase the public debt from $460 billion to $480 billion.
increase the public debt from $400 billion to $420 billion.
decrease the public debt by $20 billion.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: I Topic: The U.S. Public Debt
Type: Table
143.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscal policy.
Test Bank: II Topic: Fiscal Policy and the AD-AS Model
Type: Graph
213.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
328.
Refer to the accompanying investment schedule. Investment spending is in billions of dollars. Assume that private investment spending is initially $78 billion. If the government finances a deficit and this action increases the interest rate by 2 percentage points, then the government financing will have potentially crowded out
A. $92 billion of investment spending.
B. $17 billion of investment spending.
$78 billion of investment spending.
$14 billion of investment spending.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
329.
Refer to the graph. Private investments are initially at point 5 on curve B. The crowding-out effect would be illustrated by a movement from point 5 to point
2.
3.
C. 4.
D. 6.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
Type: Graph
330.
Refer to the graph. If the economy was initially in equilibrium at point 3 and a government deficit makes interest rates increase by 4 percentage points, then the crowding-out effect would be a reduction of
A. $10 billion in investment.
B. $20 billion in investment.
$30 billion in investment.
$6 billion in investment.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
Type: Graph
331.
Refer to the graph. The economy is initially at point 1. Which of the following events would cause a shift that would help offset the crowding-out effect? An increase in
A. interest rates caused by a change in Federal Reserve policy.
B. profit expectations resulting from an increase in government spending.
business taxes levied by government to pay for new government programs.
the degree of excess capacity in business stemming from a recession.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
Type: Graph
332.
Refer to the graph. The economy was initially in equilibrium at point 3, but then interest rates increase by 4 percentage points because of government deficit financing. The public spending, however, improves business confidence and activity that exactly offsets the potential crowding-out effect. This situation would result in a new equilibrium at point
2.
3.
4.
D. 5.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
Type: Graph
333.
The table gives data on interest rates and investment demand (in billions of dollars) in a hypothetical economy. Using the Id1 schedule, assume that the government needs to finance the public debt and this public borrowing increases the interest rate from 3 percent to 4 percent. How much crowding out of private investment will occur?
A. $100 billion
$200 billion
$600 billion
$700 billion
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
334.
The table gives data on interest rates and investment demand (in billions of dollars) in a hypothetical economy. Assume that the public debt is used to expand the capital stock of the economy and that, as a consequence, the investment-demand schedule changes from Id1 to Id2. At the same time, the interest rate rises from 3 percent to 4 percent as the government borrows money to finance the public debt. How much crowding out of private investment will occur in this case?
A. $0
$100 billion
$600 billion
$700 billion
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
The Social Security program is designed to pay
A. current retirees, using funds from their past contributions.
B. current retirees, using funds from current contributions.
the lower-income groups, using funds collected from high-income groups.
older current workers, using funds from younger current workers.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
Through the start of 2009, Social Security revenues exceeded payouts, and the excess inflow was used to buy
public lands.
gold certificates.
foreign securities.
D. Treasury securities.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
In the later part of 2009, something historic happened relative to Social Security; for the first time,
A. Social Security revenues became zero.
B. Social Security contributions fell short of payouts.
Social Security payouts did not increase.
the Social Security Trust Fund ran out of funds.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
A major concern with the Social Security trust fund is that
surpluses for Social Security are too large.
the Federal government buys too many government securities.
costs for administering the fund are greater than the current revenue.
D. the fund will be exhausted in a couple of decades.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
Which of the following is not a similarity between Medicare and Social Security?
They are both "pay-as-you-go" plans.
Their trust funds are both projected to be depleted within the next 30 years.
Contributions are collected from both employers and employees.
D. They are both intended to benefit older current workers.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
True / False Questions
Expansionary fiscal policy during a recession means cutting taxes, increasing government spending, or taking both actions.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscal policy.
Test Bank: II Topic: Fiscal Policy and the AD-AS Model
A decrease in taxes is one way to pursue a contractionary fiscal policy because it will make government revenues contract.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscal policy.
Test Bank: II Topic: Fiscal Policy and the AD-AS Model
The goal of expansionary fiscal policy is to rein in inflation.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscal policy.
Test Bank: II Topic: Fiscal Policy and the AD-AS Model
If the government wants to reduce unemployment using fiscal policy, it may do so by increasing government spending.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscal policy.
Test Bank: II Topic: Fiscal Policy and the AD-AS Model
Expansionary fiscal policy will tend to reduce the budget deficit.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscal policy.
Test Bank: II Topic: Fiscal Policy and the AD-AS Model
A decrease in government spending and a cut in taxes would be a pair of fiscal policies that reinforce each other.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscal policy.
Test Bank: II Topic: Fiscal Policy and the AD-AS Model
The flexibility of the price level tends to dampen the multiplier effect of fiscal policy.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscal policy.
Test Bank: II Topic: Fiscal Policy and the AD-AS Model
Built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-02 Explain the role of built-in stabilizers in moderating business cycles.
Test Bank: II Topic: Built-In Stability
If taxation becomes more progressive, the built-in stability in the economy will decrease.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-02 Explain the role of built-in stabilizers in moderating business cycles.
Test Bank: II Topic: Built-In Stability
Transfer payments that increase as GDP falls are a type of automatic stabilizer in the economy.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-02 Explain the role of built-in stabilizers in moderating business cycles.
Test Bank: II Topic: Built-In Stability
The key to assessing whether fiscal policy is expansionary or not is to observe the change in the cyclically adjusted budget balance.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-03 Describe how the cyclically adjusted budget reveals the status of U.S. fiscal policy.
Test Bank: II Topic: Evaluating How Expansionary or Contractionary Fiscal Policy Is Determined
If the cyclically adjusted budget has a zero deficit but the actual budget has a $100 billion deficit, then that means that the government is pursuing an expansionary fiscal policy.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-03 Describe how the cyclically adjusted budget reveals the status of U.S. fiscal policy.
Test Bank: II Topic: Evaluating How Expansionary or Contractionary Fiscal Policy Is Determined
The actual and cyclically adjusted budgets will be equal when the economy is at full employment.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-03 Describe how the cyclically adjusted budget reveals the status of U.S. fiscal policy.
Test Bank: II Topic: Evaluating How Expansionary or Contractionary Fiscal Policy Is Determined
If the cyclically adjusted budget deficit goes from 2 percent to 1 percent of GDP, then it indicates that fiscal policy has turned more contractionary.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-03 Describe how the cyclically adjusted budget reveals the status of U.S. fiscal policy.
Test Bank: II Topic: Evaluating How Expansionary or Contractionary Fiscal Policy Is Determined
The "stimulus package" that the government implemented in response to the Great Recession of 2007–09 made the cyclically adjusted budget of the U.S. have a very large positive balance in that time period.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-04 Summarize recent U.S. fiscal policy and the projections for U.S. fiscal policy over the next few years.
Test Bank: II Topic: Recent and Projected U.S. Fiscal Policy
The so-called recognition lag associated with fiscal policy is a result of how slowly the U.S. Congress moves.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-05 Discuss the problems that governments may encounter in enacting and applying fiscal policy.
Test Bank: II Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy
The concept of a "political business cycle" implies a misuse of fiscal policy making it a source of economic instability.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-05 Discuss the problems that governments may encounter in enacting and applying fiscal policy.
Test Bank: II Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy
The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-05 Discuss the problems that governments may encounter in enacting and applying fiscal policy.
Test Bank: II Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy
The so-called crowding-out effect refers to government spending crowding out private investment spending.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-05 Discuss the problems that governments may encounter in enacting and applying fiscal policy.
Test Bank: II Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy
The crowding-out effect will be minimal when the economy is in a severe recession.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-05 Discuss the problems that governments may encounter in enacting and applying fiscal policy.
Test Bank: II Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy
It is possible for an increase in government spending to encourage, instead of crowding out, private investment.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-05 Discuss the problems that governments may encounter in enacting and applying fiscal policy.
Test Bank: II Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy
A budget deficit causes the government to issue or sell Treasury bonds.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
If the budget deficit becomes smaller, then it will cause the public debt to also become smaller.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
As of 2015, more than half of the total debt of the U.S. government was owed to foreigners.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
More than half of the U.S. public debt is owed to Americans.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
A large public debt would not bankrupt the Federal government, because it can refinance the debt or increase taxes to pay the debt.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
The payment of interest on the public debt in the United States mildly increases income inequality.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
The Social Security program is a retirement system where payments to retirees come from their previous contributions.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
When Social Security contributions have exceeded payouts in the past, the excess amounts were used to help finance the Federal government's budget deficits.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
The Medicare trust fund is expected, if current flows continue, to be depleted within a couple of decades.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.
Test Bank: II Topic: The U.S. Public Debt
Chapter 14 Money, Banking, and Financial Institutions Answer Key
Multiple Choice Questions
To say money is socially defined means that
money has been defined in a Constitutional amendment.
B. whatever performs the functions of money extremely well is considered to be money.
the money supply includes all public and private securities purchased by society.
society, acting through Congress, specifies what shall be included in the money supply.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 14-01 Identify and explain the functions of money.
Test Bank: I Topic: The Functions of Money
Money functions as
a store of value.
a unit of account.
a medium of exchange.
D. a store of value, a unit of account, and a medium of exchange.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 14-01 Identify and explain the functions of money.
Test Bank: I Topic: The Functions of Money
If you are estimating your total expenses for school next semester, you are using money primarily as
a medium of exchange.
a store of value.
C. a unit of account.
D. an economic investment.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 14-01 Identify and explain the functions of money.
Test Bank: I Topic: The Functions of Money
If you place a part of your summer earnings in a savings account, you are using money primarily as a
medium of exchange.
B. store of value.
unit of account.
standard of value.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 14-01 Identify and explain the functions of money.
Test Bank: I Topic: The Functions of Money
If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as
a medium of exchange.
a store of value.
a unit of account.
an economic investment.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 14-01 Identify and explain the functions of money.
Test Bank: I Topic: The Functions of Money
A $70 price tag on a sweater in a department store window is an example of money functioning as a
unit of account.
standard of deferred payments.
store of value.
medium of exchange.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 14-01 Identify and explain the functions of money.
Test Bank: I Topic: The Functions of Money
Stock market price quotations best exemplify money serving as a
store of value.