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eco 372 week 4 knowledge check Week 4 Knowledge Check Study Guide Concepts Mastery Questions BUDGET SURPLUS BUDGET DEFICIT AND BUDGET SURPLUS TAX POLICY 100% FISCAL POLICY 100% Concept: BUDGET SURPLUS 100% Mastery 100% Questions 1. In the long-run framework, budget surpluses 1 2 3 4 5 6 1 A. B. C. D. should be run whenever output dips below potential output should never be run since they crowd out investment in the short-run are better than budget deficits over the long-run because unlike budget deficits, they increase savings and investment should be run on a permanent basis since they boost saving and investment and stimulate growth Correct: Concept: BUDGET DEFICIT AND BUDGET SURPLUS 2. Mastery 50% Questions 2 3 The budget deficit or surplus is A. B. C. D. well defined and straightforward to measure well defined but frequently distorted by creative but improper accounting practices difficult to measure and can be defined legitimately in several ways so arbitrarily defined that it is meaningless Correct: . 3. Deficits and surpluses are best viewed as A. comprehensive measures of a government budget B. C. D. a summary measure of a nation’s fiscal policy a summary measure of the financial health of the economy a summary measure of a nation’s monetary policy Concept: TAX POLICY Mastery 100% Questions 4 5 4. Suppose the government increases spending by $30 billion and raises taxes at by $20 billion at the same time. Then, A. interest rates will most likely stay the same B. C. D. interest rates will most likely increase business investment is not likely to change business investment is likely to increase due to crowding out Correct: 5. Because automatic stabilizers lower transfer payments and raise tax receipts as an economy recovers from a recession, they A. B. C. slow down the pace of an economic recovery increase the pace of an economic recovery do not affect the pace of an economic recovery D. accelerate the recovery from a recession until inflation starts to develop, at which point they slow the recovery Correct: Concept: FISCAL POLICY Mastery 100% Questions 6. Most of the government budget is mandatory spending through programs like Medicare and Social Security, and much of the rest is politically difficult to alter. Because of this, A. fiscal policy is always undertaken only when there is a national crisis that motivates voters to seek change 6 B. C. D. fiscal policy that involves raising taxes is more likely to be implemented than fiscal policy that involves borrowing money the amount of spending is unlikely to be implemented as economists suggest most spending is geared to perform as an automatic stabilizer, so that Congress is in fact largely irrelevant when it comes to providing a fiscal response to a recession Correct:

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