Question

1.

A rule that the government must balance the cyclically adjusted budget would
I: allow the government to carry on a limited countercyclical fiscal policy.
II: keep the debt-to-GDP ratio from rising in the long run.
  
Both I and II are true.
I is true; II is not.
II is true; I is not.
Neither I nor II is true.

2.

To the extent that mortgage defaults contributed to the financial crisis of 2008–2009 in the United States, blame for these actions lies with:
mortgage brokers who encouraged households to borrow excessively.
homebuyers who borrowed more than they could afford to repay, mortgage brokers who encourages households to borrow excessively, and government policymakers who pursued policies to encourage homeownership.

government policymakers who pursued policies to encourage homeownership.

homebuyers who borrowed more than they could afford to repay.

3.

According to the traditional view of government debt, if taxes are cut without cutting government spending, then the long-run effects will be ______ capital and ______ consumption.
higher; lower
lower; lower
lower; higher
higher; higher

4.

If the preferred bank stock acquired by the U.S. government through the TARP program is valued using a capital budgeting approach, then the government budget deficit in the year in which the stock is acquired will be _____ than if a current budget approach were employed.

smaller
more cyclical
no different
larger

5.

All of the following are examples of financial intermediaries except:
  
stock exchanges.
chartered banks.
insurance companies.
pension funds.

Answer 1

Question 1.

Answer: 1 is true and 2 is not

The government will be able to carry out counter cyclical fiscal policy on a limited scale because even if it can run deficit budget during recession, the size of the deficit cannot be determined exactly. It may be sufficient or insufficient.