Question 1

If the nominal deficit is $200 billion, the real deficit is $150 billion, and total debt is $2 trillion, then inflation is:

Accepted Answer

A) 1 percent. 
B) 2.5 percent. 
C) 4 percent. 
D) 5 percent. 
A) 1 percent. 
B) 2.5 percent. 
C) 4 percent. 
D) 5 percent.

Question 2

Interest payments on the government debt depend directly on:

Accepted Answer

A) returns from government assets. 
B) whether debt is owed to citizens or foreigners. 
C) current expenditures. 
D) past expenditures. 
A) returns from government assets. 
B) whether debt is owed to citizens or foreigners. 
C) current expenditures. 
D) past expenditures.

Question 3

Does inflation actually wipe out the real burden of the debt? Who (if anyone)bears the cost of eliminating debt with inflation?

Accepted Answer

A fall in the value of money will reduce

Question 4

In the long-run framework, budget surpluses:

Accepted Answer

A) should be run whenever output dips below potential output. 
B) should never be run since they crowd out investment in the short run. 
C) are better than budget deficits over the long run because unlike budget deficits, they increase saving and investment. 
D) should be run on a permanent basis since they boost saving and investment and stimulate economic growth. 
A) should be run whenever output dips below potential output. 
B) should never be run since they crowd out investment in the short run. 
C) are better than budget deficits over the long run because unlike budget deficits, they increase saving and investment. 
D) should be run on a permanent basis since they boost saving and investment and stimulate economic growth.

Question 5

How can inflation wipe out debt?

Accepted Answer

Inflation can wipe out a debt by making

Question 6

If an economy is $100 billion below potential, the tax rate is 20 percent, and the deficit is $180 billion, the structural deficit is:

Accepted Answer

A) $20 billion. 
B) $160 billion. 
C) $180 billion. 
D) $200 billion. 
A) $20 billion. 
B) $160 billion. 
C) $180 billion. 
D) $200 billion.

Question 7

Calculate the real deficit from the figures in the examples given below:
#1: Nominal deficit = $8 million;Inflation = 5%;Total debt = $100 million
#2: Nominal deficit = $8 million;Inflation = 8%;Total debt = $100 million
#3: Nominal deficit = $8 million;Inflation = 8%;Total debt = $200 million

Accepted Answer

Real deficit = Nominal deficit - (Inflat

Question 8

The government has just issued a news bulletin announcing that it is currently running a budget deficit of $100 billion.Two economists are arguing (imagine!)over this announcement.One economist claims that the deficit is larger than the government is reporting,while the other maintains that the government is actually running a budget surplus.Here are the facts: the size of the economy is $7 trillion,potential output is $7.5 trillion,and the marginal tax rate is 25%.Government expenditures do not vary with income.It turns out that both economists are correct! How can this be? Hint: Consider the difference between the passive and the structural deficit concepts.

Accepted Answer

Recall the following definitions:
A stru

Question 9

What makes it possible for a country to maintain a constant debt-to-GDP ratio and still have continual deficits is:

Accepted Answer

A) positive private savings. 
B) trade surpluses. 
C) continual inflation. 
D) real economic growth. 
A) positive private savings. 
B) trade surpluses. 
C) continual inflation. 
D) real economic growth.

Question 10

Economists who focus on the need for fiscal austerity tend to focus on

Accepted Answer

A) the long run. 
B) the short run. 
C) both the short run and the long run. 
D) neither the short run or the long run. 
A) the long run. 
B) the short run. 
C) both the short run and the long run. 
D) neither the short run or the long run.

Question 11

The real deficit is the nominal deficit adjusted for changes in:

Accepted Answer

A) interest rates. 
B) potential output. 
C) output. 
D) the general price level. 
A) interest rates. 
B) potential output. 
C) output. 
D) the general price level.

Question 12

Suppose that the economy has a structural deficit of $200 billion and is also running a budget deficit. It follows that:

Accepted Answer

A) there is no cyclical deficit or surplus. 
B) there is a cyclical surplus. 
C) there is a cyclical deficit. 
D) the cyclical deficit or surplus cannot be determined without more information. 
A) there is no cyclical deficit or surplus. 
B) there is a cyclical surplus. 
C) there is a cyclical deficit. 
D) the cyclical deficit or surplus cannot be determined without more information.

Question 13

A government can finance its budget deficit by doing all of the following except:

Accepted Answer

A) buying bonds. 
B) borrowing from its central bank. 
C) selling bonds. 
D) printing money. 
A) buying bonds. 
B) borrowing from its central bank. 
C) selling bonds. 
D) printing money.

Question 14

Much of the U.S. debt is held internally.

Accepted Answer

A) True 
 B)False

Question 15

Suppose that the economy has a structural surplus of $100 billion and is operating above potential output. From this we can infer that the budget as a whole:

Accepted Answer

A) is in deficit. 
B) is balanced. 
C) is in surplus. 
D) could be in deficit or surplus depending on the size of the cyclical deficit. 
A) is in deficit. 
B) is balanced. 
C) is in surplus. 
D) could be in deficit or surplus depending on the size of the cyclical deficit.

Question 16

Government debt held by citizens of a country is:

Accepted Answer

A) more like an individual's debt because paying interest on it involves a net reduction in domestic income. 
B) more like an individual's debt because paying interest on it involves no net reduction in domestic income. 
C) less like an individual's debt because paying interest on it involves a net reduction in domestic income. 
D) less like an individual's debt because paying interest on it involves no net reduction in domestic income. 
A) more like an individual's debt because paying interest on it involves a net reduction in domestic income. 
B) more like an individual's debt because paying interest on it involves no net reduction in domestic income. 
C) less like an individual's debt because paying interest on it involves a net reduction in domestic income. 
D) less like an individual's debt because paying interest on it involves no net reduction in domestic income.

Question 17

Why do economists prefer to examine the national debt as a percentage of GDP rather than as an absolute value?

Accepted Answer

Economists prefer to examine the debt-to

Question 18

What is the difference between a nominal deficit and the real deficit? Write a formula that shows the relationship between the two.

Accepted Answer

A nominal deficit is the deficit determi

Question 19

One of the reasons government debt is different from individual debt is:

Accepted Answer

A) government does not pay interest on its debt. 
B) government never really needs to pay back its debt. 
C) all government debt is owed to other government agencies. 
D) the government debt is unrelated to income. 
A) government does not pay interest on its debt. 
B) government never really needs to pay back its debt. 
C) all government debt is owed to other government agencies. 
D) the government debt is unrelated to income.

Question 20

What's the difference between a structural and a passive budget deficit? What contributes to a passive deficit? Use the distinction between passive and structural deficits and surpluses to explain how the $5.9 trillion surplus that economists back in 2000 predicted would occur over 15 years quickly disappeared during the 2001/2002 recession

Accepted Answer

The structural deficit is that part of a

Exam 31: Deficits and Debt: the Austerity Debate

If the nominal deficit is $200 billion, the real deficit is $150 billion, and total debt is $2 trillion, then inflation is:

Interest payments on the government debt depend directly on:

Does inflation actually wipe out the real burden of the debt? Who (if anyone)bears the cost of eliminating debt with inflation?

In the long-run framework, budget surpluses:

How can inflation wipe out debt?

If an economy is $100 billion below potential, the tax rate is 20 percent, and the deficit is $180 billion, the structural deficit is:

Calculate the real deficit from the figures in the examples given below: #1: Nominal deficit = $8 million;Inflation = 5%;Total debt = $100 million #2: Nominal deficit = $8 million;Inflation = 8%;Total debt = $100 million #3: Nominal deficit = $8 million;Inflation = 8%;Total debt = $200 million

What makes it possible for a country to maintain a constant debt-to-GDP ratio and still have continual deficits is:

Economists who focus on the need for fiscal austerity tend to focus on

The real deficit is the nominal deficit adjusted for changes in:

Suppose that the economy has a structural deficit of $200 billion and is also running a budget deficit. It follows that:

A government can finance its budget deficit by doing all of the following except:

Much of the U.S. debt is held internally.

Suppose that the economy has a structural surplus of $100 billion and is operating above potential output. From this we can infer that the budget as a whole:

Government debt held by citizens of a country is:

Why do economists prefer to examine the national debt as a percentage of GDP rather than as an absolute value?

What is the difference between a nominal deficit and the real deficit? Write a formula that shows the relationship between the two.

One of the reasons government debt is different from individual debt is:

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

Filters