Question 1

If the real deficit is $200 billion, the inflation rate is 2.5 percent, and total debt is $2 trillion, then the nominal deficit is:

Accepted Answer

A) $100 billion. 
B) $250 billion. 
C) $300 billion. 
D) $350 billion. 
A) $100 billion. 
B) $250 billion. 
C) $300 billion. 
D) $350 billion.

Question 2

If income falls below its potential and the income tax rate is reduced, this will:

Accepted Answer

A) raise both the cyclical and structural deficits. 
B) raise the cyclical deficit but reduce the structural deficit. 
C) reduce the cyclical deficit but raise the structural deficit. 
D) reduce both the cyclical and structural deficits. 
A) raise both the cyclical and structural deficits. 
B) raise the cyclical deficit but reduce the structural deficit. 
C) reduce the cyclical deficit but raise the structural deficit. 
D) reduce both the cyclical and structural deficits.

Question 3

The cyclical deficit is $400 billion, potential output is $9 trillion and the tax rate is 16 percent. With this information, we can infer that the actual output of this economy is:

Accepted Answer

A) $6 trillion. 
B) $11.5 trillion. 
C) $6.5 trillion. 
D) $9 trillion. 
A) $6 trillion. 
B) $11.5 trillion. 
C) $6.5 trillion. 
D) $9 trillion.

Question 4

What's the difference between a structural and a passive budget deficit? What contributes to a passive deficit?

Accepted Answer

The structural deficit is the part of a

Question 5

Compared to the predictions of the standard AS/AD model, the structural stagnation model implies that the:

Accepted Answer

A) structural deficit is higher. 
B) cyclical deficit is higher. 
C) frictional deficit is lower. 
D) potential deficit is lower. 
A) structural deficit is higher. 
B) cyclical deficit is higher. 
C) frictional deficit is lower. 
D) potential deficit is lower.

Question 6

Policymakers generally are:

Accepted Answer

A) more concerned about structural deficits than cyclical deficits. 
B) equally concerned about structural and cyclical deficits. 
C) more concerned about cyclical deficits than structural deficits. 
D) not concerned about structural or cyclical deficits. 
A) more concerned about structural deficits than cyclical deficits. 
B) equally concerned about structural and cyclical deficits. 
C) more concerned about cyclical deficits than structural deficits. 
D) not concerned about structural or cyclical deficits.

Question 7

Consider an economy with an annual GDP of $5 trillion that is growing at a real rate of 3% per year,and has a government debt of $3 trillion.
(a)What is this economy's relative debt burden?
(b)How much of a deficit can this economy's government have each year and still maintain its current relative debt burden?

Accepted Answer

(a)The relative debt burden is measured

Question 8

During World War II, the economic boom that raised U.S. equilibrium income above potential income:

Accepted Answer

A) increased the structural deficit. 
B) eliminated any structural deficit. 
C) increased the cyclical deficit. 
D) eliminated any cyclical deficit. 
A) increased the structural deficit. 
B) eliminated any structural deficit. 
C) increased the cyclical deficit. 
D) eliminated any cyclical deficit.

Question 9

An unanticipated increase in the inflation rate will most likely:

Accepted Answer

A) either increase or decrease the real value of the national debt, depending on the effect of inflation on capital gains and losses. 
B) increase the real value of the national debt. 
C) transfer real wealth from bondholders to the government. 
D) have no effect on the real value of the national debt. 
A) either increase or decrease the real value of the national debt, depending on the effect of inflation on capital gains and losses. 
B) increase the real value of the national debt. 
C) transfer real wealth from bondholders to the government. 
D) have no effect on the real value of the national debt.

Question 10

What is the distinction between the nominal deficit and the real deficit? Why can inflation wipe out debt?

Accepted Answer

The nominal deficit is measured by the d

Question 11

Deficits and surpluses are best viewed as:

Accepted Answer

A) comprehensive measures of government's budget. 
B) a summary measure of a nation's fiscal policy. 
C) a summary measure of the financial health of the economy. 
D) a summary measure of a nation's monetary policy. 
A) comprehensive measures of government's budget. 
B) a summary measure of a nation's fiscal policy. 
C) a summary measure of the financial health of the economy. 
D) a summary measure of a nation's monetary policy.

Question 12

If the nominal deficit is $200 billion, the real deficit is $180 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 13

What is the difference between a nominal deficit and the real deficit? How can inflation wipe out the burden of the national debt? Who bears the cost of eliminating debt with inflation?

Accepted Answer

A nominal deficit is the deficit determi

Question 14

What are two ways growth in GDP reduces the problems posed by deficits and debt? Explain each of them.

Accepted Answer

GDP can grow because of real growth or b

Question 15

The real deficit is the nominal deficit adjusted for inflation's effect on existing debt.

Accepted Answer

A) True 
 B)False

Question 16

If the debt of the federal government decreases by $20 billion in one year the budget:

Accepted Answer

A) deficit in that year must be $20 billion. 
B) surplus in that year must be $20 billion. 
C) deficit in that year decreases by $20 billion. 
D) surplus in that year increases by $20 billion. 
A) deficit in that year must be $20 billion. 
B) surplus in that year must be $20 billion. 
C) deficit in that year decreases by $20 billion. 
D) surplus in that year increases by $20 billion.

Question 17

Economists believe that an increase in equilibrium income can eliminate a cyclical deficit but cannot eliminate a structural deficit.

Accepted Answer

A) True 
 B)False

Question 18

How do accounting practices affect the definitions of deficits and surpluses? Explain.

Accepted Answer

The definitions of deficit and surplus a

Question 19

The real deficit is $180 billion; inflation is 4 percent; total debt is $4.5 trillion. The nominal deficit is:

Accepted Answer

A) zero. 
B) $1 billion. 
C) $180 billion. 
D) $360 billion. 
A) zero. 
B) $1 billion. 
C) $180 billion. 
D) $360 billion.

Question 20

Bond holders:

Accepted Answer

A) lose when actual inflation equals expected inflation. 
B) gain when actual inflation is more than was expected. 
C) do not lose when the expected inflation built into the nominal interest rate is correct. 
D) do not lose when the expected inflation built into the nominal interest rate is lower than actual inflation. 
A) lose when actual inflation equals expected inflation. 
B) gain when actual inflation is more than was expected. 
C) do not lose when the expected inflation built into the nominal interest rate is correct. 
D) do not lose when the expected inflation built into the nominal interest rate is lower than actual inflation.

Exam 31: Deficits and Debt: the Austerity Debate

If the real deficit is $200 billion, the inflation rate is 2.5 percent, and total debt is $2 trillion, then the nominal deficit is:

If income falls below its potential and the income tax rate is reduced, this will:

The cyclical deficit is $400 billion, potential output is $9 trillion and the tax rate is 16 percent. With this information, we can infer that the actual output of this economy is:

What's the difference between a structural and a passive budget deficit? What contributes to a passive deficit?

Compared to the predictions of the standard AS/AD model, the structural stagnation model implies that the:

Policymakers generally are:

During World War II, the economic boom that raised U.S. equilibrium income above potential income:

An unanticipated increase in the inflation rate will most likely:

What is the distinction between the nominal deficit and the real deficit? Why can inflation wipe out debt?

Deficits and surpluses are best viewed as:

If the nominal deficit is $200 billion, the real deficit is $180 billion, and total debt is $2 trillion, then inflation is:

What is the difference between a nominal deficit and the real deficit? How can inflation wipe out the burden of the national debt? Who bears the cost of eliminating debt with inflation?

What are two ways growth in GDP reduces the problems posed by deficits and debt? Explain each of them.

The real deficit is the nominal deficit adjusted for inflation's effect on existing debt.

If the debt of the federal government decreases by $20 billion in one year the budget:

Economists believe that an increase in equilibrium income can eliminate a cyclical deficit but cannot eliminate a structural deficit.

How do accounting practices affect the definitions of deficits and surpluses? Explain.

The real deficit is $180 billion; inflation is 4 percent; total debt is $4.5 trillion. The nominal deficit is:

Bond holders:

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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