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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