CLEP Macroeconomics chapter practice4 questions

16 Fiscal Policy, Deficits, and Public Debt

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

Fiscal and monetary tools are controlled by different authorities. Which of the following is expansionary fiscal policy?

Government purchases enter aggregate demand directly, so raising them adds to spending without waiting on anyone's decision to spend. Choices A and B move the same fiscal levers in the contractionary direction. Choices C and D are central-bank operations, which work on demand only through interest rates.
Show answer and explanation

E. A rise in government purchases

Government purchases enter aggregate demand directly, so raising them adds to spending without waiting on anyone's decision to spend. Choices A and B move the same fiscal levers in the contractionary direction. Choices C and D are central-bank operations, which work on demand only through interest rates.

Question 2

Question 2 of 4

A recession reduces household incomes while existing tax law remains unchanged. Which response cushions disposable income automatically?

Existing rate schedules simply collect less when incomes fall, and no vote is needed, which is what makes the response automatic. Choices B and D both wait on legislation, one on the spending side and one on the tax side. Choice C is a central-bank operation, and E is a price-level effect on wealth rather than a budget rule.
Show answer and explanation

A. Lower tax collections under current rates

Existing rate schedules simply collect less when incomes fall, and no vote is needed, which is what makes the response automatic. Choices B and D both wait on legislation, one on the spending side and one on the tax side. Choice C is a central-bank operation, and E is a price-level effect on wealth rather than a budget rule.

Question 3

Question 3 of 4

Budget documents report both an annual deficit and an outstanding debt. What is the deficit for a fiscal year?

A deficit accumulates over a budget year, so it is measured in dollars per year, like income rather than like wealth. Choice B assigns it a single date, which is how a stock is measured. Choice C confuses it with the running total, D leaves transfers and interest out of the definition, and E measures a ten-year change in the stock.
Show answer and explanation

A. A flow measured over a budget period

A deficit accumulates over a budget year, so it is measured in dollars per year, like income rather than like wealth. Choice B assigns it a single date, which is how a stock is measured. Choice C confuses it with the running total, D leaves transfers and interest out of the definition, and E measures a ten-year change in the stock.

Question 4

Question 4 of 4

Public debt and the annual budget deficit are frequently confused. What is the public debt of a national government?

Debt is everything still owed from past borrowing, net of what has been repaid. Choice A names one year's deficit and B one year's interest, both flows. Choice D lists assets rather than obligations, and E is an external balance with no connection to the budget.
Show answer and explanation

C. The accumulated total of past borrowing

Debt is everything still owed from past borrowing, net of what has been repaid. Choice A names one year's deficit and B one year's interest, both flows. Choice D lists assets rather than obligations, and E is an external balance with no connection to the budget.

Quiz complete