SOLVED

18.6  Deficits, Surpluses, and Federal Government Debt 1) To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the A) absolute size of the budget deficit or surplus. B) budget deficit or surplus as a percentage of GDP. C) budget deficit or surplus as a percentage of tax revenues. D) budget deficit or surplus as a percentage of government spending. 2) Historically, the largest U.S. federal budget deficits as a percentage of GDP in the 20th century occurred during A) World War I and World War II. B) the Great Depression. C) 1970-1997. D) the Vietnam war. E) 1998-1999. 3) During 1970-1997, the U.S. federal government was A) in surplus every year. B) balanced every year. C) in deficit every year. D) in deficit most of those years. 4) A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________. A) increase; rise; falls B) increase; fall; rises C) decrease; rise; falls D) decrease; fall; rises 5) An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________. A) increase; rise; falls B) increase; fall; rises C) decrease; rise; falls D) decrease; fall; rises 6) The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was A) in a recession. B) in an expansion. C) at potential GDP. D) at potential tax revenue. 7) Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession. If the economy had been at potential GDP, it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower. Using these estimates, the cyclically adjusted budget A) deficit was $210 billion. B) deficit was $110 billion. C) surplus was $10 billion. D) surplus was $110 billion. 8) The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle A) destabilize the economy. B) stabilize the economy. C) decrease potential GDP. D) increase potential GDP. 9) During the Great Depression, what appeared to be ________ fiscal policy was actually not when the ________ budget deficit or surplus is examined. A) expansionary; actual B) expansionary; cyclically adjusted C) contractionary; actual D) contractionary; cyclically adjusted 10) For the federal deficit to be lowered, A) the federal government must decrease its spending and increase net exports. B) the federal government’s expenditures must be lower than its tax revenue. C) the Federal Reserve must raise interest rates and lower the required reserve ratio. D) the Federal Reserve must reduce the money supply.