Question 1

A country that is running a budget surplus will not be in debt.

Accepted Answer

A) True 
 B)False

Question 2

Evidence shows the United States can continue its expansionary fiscal policies without causing a new financial crisis.

Accepted Answer

A) True 
 B)False

Question 3

Paying interest on external government debt rather than on domestic debt produces:

Accepted Answer

A) a net reduction in domestic income. 
B) a redistribution of income within the country. 
C) a net increase in domestic income. 
D) no change in the level or distribution of domestic income. 
A) a net reduction in domestic income. 
B) a redistribution of income within the country. 
C) a net increase in domestic income. 
D) no change in the level or distribution of domestic income.

Question 4

A cyclical deficit is the portion of the deficit that exists when:

Accepted Answer

A) the economy is at potential income. 
B) the economy is below potential income. 
C) inflation is not fully anticipated. 
D) inflation is fully anticipated. 
A) the economy is at potential income. 
B) the economy is below potential income. 
C) inflation is not fully anticipated. 
D) inflation is fully anticipated.

Question 5

Debt service refers to:

Accepted Answer

A) how much debt a country incurs each year. 
B) the interest rate a country pays on its debt. 
C) the fraction of a country's debt that becomes due each year. 
D) the interest payments a country makes on its debt each year. 
A) how much debt a country incurs each year. 
B) the interest rate a country pays on its debt. 
C) the fraction of a country's debt that becomes due each year. 
D) the interest payments a country makes on its debt each year.

Question 6

The government decides to increase its expenditures by $250. The multiplier in this economy is 4 and the tax rate is 22 percent. The net effect of this expansionary fiscal policy is to:

Accepted Answer

A) increase the budget deficit by $30. 
B) increase the budget deficit by $220. 
C) decrease the budget deficit by $30. 
D) decrease the budget deficit by $220. 
A) increase the budget deficit by $30. 
B) increase the budget deficit by $220. 
C) decrease the budget deficit by $30. 
D) decrease the budget deficit by $220.

Question 7

Which of the following is a reason why government debt is different from individual debt?

Accepted Answer

A) Government has fewer sources of income to finance its debt than individuals. 
B) Government can create money to finance its debt. 
C) Government debt can be owed to foreigners, unlike the debt of individuals. 
D) Government debt must be repaid at some point in time. 
A) Government has fewer sources of income to finance its debt than individuals. 
B) Government can create money to finance its debt. 
C) Government debt can be owed to foreigners, unlike the debt of individuals. 
D) Government debt must be repaid at some point in time.

Question 8

When the government runs a deficit, it will:

Accepted Answer

A) buy bonds to finance the deficit. 
B) sell bonds to finance the deficit. 
C) reduce the money supply to finance the deficit. 
D) raise taxes immediately. 
A) buy bonds to finance the deficit. 
B) sell bonds to finance the deficit. 
C) reduce the money supply to finance the deficit. 
D) raise taxes immediately.

Question 9

A decrease the nominal deficit can be caused by an increase in:

Accepted Answer

A) taxes. 
B) government expenditures. 
C) interest rates. 
D) the debt. 
A) taxes. 
B) government expenditures. 
C) interest rates. 
D) the debt.

Question 10

Debt service payments by the government:

Accepted Answer

A) are used to purchase goods and services. 
B) are a payment for past expenditures. 
C) do not burden the generations that must make them. 
D) have fallen continuously since World War II. 
A) are used to purchase goods and services. 
B) are a payment for past expenditures. 
C) do not burden the generations that must make them. 
D) have fallen continuously since World War II.

Question 11

Which of the following statements about government debt is false?

Accepted Answer

A) Government has the power to tax to finance its debt. 
B) Government can create money to finance its debt. 
C) Most U.S. government debt is owned by foreigners. 
D) Almost half of U.S. government debt is internal to the government. 
A) Government has the power to tax to finance its debt. 
B) Government can create money to finance its debt. 
C) Most U.S. government debt is owned by foreigners. 
D) Almost half of U.S. government debt is internal to the government.

Question 12

External debt rises from 5 percent of GDP to over 30 percent of GDP. This increase in external debt is:

Accepted Answer

A) not a potential problem because repayment does not imply a net reduction in the income of an average citizen. 
B) not a potential problem because government debt differs from the debt of individuals. 
C) a potential problem because government debt is no different from the debt of individuals. 
D) a potential problem because repayment implies a net reduction in the income of an average citizen. 
A) not a potential problem because repayment does not imply a net reduction in the income of an average citizen. 
B) not a potential problem because government debt differs from the debt of individuals. 
C) a potential problem because government debt is no different from the debt of individuals. 
D) a potential problem because repayment implies a net reduction in the income of an average citizen.

Question 13

If an economy is operating at potential output:

Accepted Answer

A) any surplus would be a cyclical surplus. 
B) any surplus would be a structural surplus. 
C) a budget surplus is impossible. 
D) the budget must be in surplus. 
A) any surplus would be a cyclical surplus. 
B) any surplus would be a structural surplus. 
C) a budget surplus is impossible. 
D) the budget must be in surplus.

Question 14

A government budget deficit occurs when government revenues exceed government expenditures.

Accepted Answer

A) True 
 B)False

Question 15

Define the terms deficit and debt.Which is a flow concept and which is a stock concept?

Accepted Answer

A deficit is a shortfall of revenues bel

Question 16

If government has no debt initially but then has annual revenues of $1.5 billion for 10 years and annual expenditures of $1.6 billion for 10 years, then the government has a:

Accepted Answer

A) deficit of $100 million per year and a debt of $1 billion. 
B) surplus of $100 million per year and a debt of $1 billion. 
C) deficit of $100 million and a debt of $1 billion per year. 
D) surplus of $100 million and a debt of $1 billion per year. 
A) deficit of $100 million per year and a debt of $1 billion. 
B) surplus of $100 million per year and a debt of $1 billion. 
C) deficit of $100 million and a debt of $1 billion per year. 
D) surplus of $100 million and a debt of $1 billion per year.

Question 17

In which framework are government surpluses and deficits viewed as being better (or worse)for the economy-the short run or the long run? Explain.

Accepted Answer

Economic theory suggests that in the lon

Question 18

Which of the following holds the most U.S. government debt?

Accepted Answer

A) U.S. government agencies not including Social Security 
B) The Federal Reserve 
C) Social Security 
D) Foreigners and U.S. citizens 
A) U.S. government agencies not including Social Security 
B) The Federal Reserve 
C) Social Security 
D) Foreigners and U.S. citizens

Question 19

If a cyclical surplus exists, the economy must be:

Accepted Answer

A) at potential income. 
B) above potential income. 
C) below potential income. 
D) experiencing deflation. 
A) at potential income. 
B) above potential income. 
C) below potential income. 
D) experiencing deflation.

Question 20

If inflation is correctly anticipated, those who buy government bonds will:

Accepted Answer

A) suffer losses regardless of inflation because interest paid on government bonds is set by Congress. 
B) not suffer losses because inflation does not affect the purchasing power. 
C) suffer losses because they will be compensated by lower interest payments. 
D) not suffer losses because they will be compensated by higher interest payments. 
A) suffer losses regardless of inflation because interest paid on government bonds is set by Congress. 
B) not suffer losses because inflation does not affect the purchasing power. 
C) suffer losses because they will be compensated by lower interest payments. 
D) not suffer losses because they will be compensated by higher interest payments.

Exam 31: Deficits and Debt: the Austerity Debate

A country that is running a budget surplus will not be in debt.

Evidence shows the United States can continue its expansionary fiscal policies without causing a new financial crisis.

Paying interest on external government debt rather than on domestic debt produces:

A cyclical deficit is the portion of the deficit that exists when:

Debt service refers to:

The government decides to increase its expenditures by $250. The multiplier in this economy is 4 and the tax rate is 22 percent. The net effect of this expansionary fiscal policy is to:

Which of the following is a reason why government debt is different from individual debt?

When the government runs a deficit, it will:

A decrease the nominal deficit can be caused by an increase in:

Debt service payments by the government:

Which of the following statements about government debt is false?

External debt rises from 5 percent of GDP to over 30 percent of GDP. This increase in external debt is:

If an economy is operating at potential output:

A government budget deficit occurs when government revenues exceed government expenditures.

Define the terms deficit and debt.Which is a flow concept and which is a stock concept?

If government has no debt initially but then has annual revenues of $1.5 billion for 10 years and annual expenditures of $1.6 billion for 10 years, then the government has a:

In which framework are government surpluses and deficits viewed as being better (or worse)for the economy-the short run or the long run? Explain.

Which of the following holds the most U.S. government debt?

If a cyclical surplus exists, the economy must be:

If inflation is correctly anticipated, those who buy government bonds will:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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