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Federal Reserve Bank of Boston Economic Quiz
Fiscal Policy II
1. A government deficit occurs when government expenditures are greater than the revenue collected in a given year. A government deficit can be defended against a balanced budget policy because:
private investment decreases.
it has no immediate effect on the economy.
the government can stimulate the economy when income is unusually low.
the public does not voice concern about the national debt.
2. Theory predicts that if employment is less than its potential, an increase in government purchases will lead to
a decrease in national income.
no change in national income.
an increase in national income of equal magnitude.
an increase in national income of greater magnitude.
3. Over the past 50 years, gross federal government debt as a percentage of GDP
has been consistently high.
was initially low but rose significantly in the ’80s.
was the highest in the early ’50s but, after a dip, rose again in the ’80s.
was initially high but, after a dip, rose in the ’80s to an even higher share.
4. In January 2001, the Congressional Budget Office (CBO) predicted a 10-year budget surplus of $5.6 trillion. By January 2002, the CBO had revised the10-year surplus estimate to $1.6 trillion (a drop of $4 trillion within one year) because of
legislative tax changes in the past year.
increased debt-service costs.
changes in the outlook for the economy given the 2001 recession.
increased defense spending.
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Economic quiz written by: Anne vanGrondelle - June 17, 2002
Views expressed in the economic quiz are those of the individual author.