Question 1

Say the economy is at its potential income at $8 trillion and the deficit is $200 billion. The structural deficit:

Accepted Answer

A) is $200 billion. 
B) could be less than $200 billion. 
C) could be more than $200 billion. 
D) cannot be determined from the given information. 
A) is $200 billion. 
B) could be less than $200 billion. 
C) could be more than $200 billion. 
D) cannot be determined from the given information.

Question 2

In what way is government debt like individual debt?

Accepted Answer

A) Much of government debt is owed to its own citizens. 
B) Government can pay its debt by printing money. 
C) Inflation reduces the real value of both types of debt. 
D) Government never has to pay back its debt. 
A) Much of government debt is owed to its own citizens. 
B) Government can pay its debt by printing money. 
C) Inflation reduces the real value of both types of debt. 
D) Government never has to pay back its debt.

Question 3

A budget surplus is defined as:

Accepted Answer

A) a shortfall of revenues compared to expenditures. 
B) a shortfall of expenditures compared to revenue. 
C) accumulated deficits minus accumulated surpluses. 
D) accumulated surpluses minus accumulated deficits. 
A) a shortfall of revenues compared to expenditures. 
B) a shortfall of expenditures compared to revenue. 
C) accumulated deficits minus accumulated surpluses. 
D) accumulated surpluses minus accumulated deficits.

Question 4

All other things equal, the real surplus:

Accepted Answer

A) falls as inflation increases. 
B) is not affected by inflation. 
C) rises as inflation increases. 
D) may rise or fall as inflation increases depending on the level of debt. 
A) falls as inflation increases. 
B) is not affected by inflation. 
C) rises as inflation increases. 
D) may rise or fall as inflation increases depending on the level of debt.

Question 5

The United States is a net borrower. If its budget deficits rise faster than GDP, the national debt will:

Accepted Answer

A) increase in terms of dollars but decrease as a percentage of GDP. 
B) increase both in terms of dollars and as a percentage of GDP. 
C) decrease in terms of dollars but increase as a percentage of GDP. 
D) decrease both in terms of dollars and as a percentage of GDP. 
A) increase in terms of dollars but decrease as a percentage of GDP. 
B) increase both in terms of dollars and as a percentage of GDP. 
C) decrease in terms of dollars but increase as a percentage of GDP. 
D) decrease both in terms of dollars and as a percentage of GDP.

Question 6

An increase in the U.S. national debt would be:

Accepted Answer

A) unsustainable under any circumstances. 
B) unsustainable if U.S. GDP grew at a faster rate than the debt. 
C) unsustainable if U.S. GDP grew at a slower rate than the debt. 
D) sustainable under any circumstances. 
A) unsustainable under any circumstances. 
B) unsustainable if U.S. GDP grew at a faster rate than the debt. 
C) unsustainable if U.S. GDP grew at a slower rate than the debt. 
D) sustainable under any circumstances.

Question 7

Use the following table to determine which statement is true. $\begin{array}{|c|c|}
\hline \text { Year } & \text { Surplus or deficit }(-) \text { billions of dollars } \
\hline 1946 & -15.9 \
\hline 1947 & 4.0 \
\hline 1948 & 11.8 \
\hline 1949 & 0.9 \
\hline 1950 & -3.1 \
\hline
\end{array}$

Accepted Answer

A) The budget deficit in 1950 was $2.3 billion. 
B) From 1946 to 1950, the U.S. debt was $2.3 billion. 
C) From 1945 to 1950, the debt rose by $2.3 billion. 
D) In 1950, the U.S. debt was $2.3 billion. 
A) The budget deficit in 1950 was $2.3 billion. 
B) From 1946 to 1950, the U.S. debt was $2.3 billion. 
C) From 1945 to 1950, the debt rose by $2.3 billion. 
D) In 1950, the U.S. debt was $2.3 billion.

Question 8

According to some economists, when a country's debt-to-GDP ratio exceeds 90 percent:

Accepted Answer

A) the interest rate will fall, reducing debt service payments. 
B) the government will have to purchase more long-term securities. 
C) it will compel citizens to buy more U.S. debt. 
D) the government will face financial instability 
A) the interest rate will fall, reducing debt service payments. 
B) the government will have to purchase more long-term securities. 
C) it will compel citizens to buy more U.S. debt. 
D) the government will face financial instability

Question 9

To earn money,you decide to open up a popcorn stand at your student union.At the end of your first year of operation,your financial condition is as follows: Assume that the opportunity cost of your time is zero.
 $\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Purchase of popcorn making } \
\text { machine }
\end{array} & \$ 5,000 \
\hline \text { Purchase of popping corn } & \$ 1,000 \
\hline \text { Revenue from sale of popcorn } & \$ 5,000 \
\hline
\end{array}$ (a)Did you run a deficit or a surplus during your first year?
(b)Assuming a four-year useful life for your popcorn-making machine,how does your answer to (a)change if you evenly depreciate the value of your machine?
(c)How do your answers to (a)and (b)relate to the government's budget balance calculations? Explain.

Accepted Answer

(a)Looking only at out-of-pocket expense

Question 10

The nominal deficit depends primarily on:

Accepted Answer

A) government's expenditures and receipts. 
B) the rate of inflation. 
C) the difference between potential and actual output. 
D) the debt. 
A) government's expenditures and receipts. 
B) the rate of inflation. 
C) the difference between potential and actual output. 
D) the debt.

Exam 31: Deficits and Debt: the Austerity Debate

Say the economy is at its potential income at $8 trillion and the deficit is $200 billion. The structural deficit:

In what way is government debt like individual debt?

A budget surplus is defined as:

All other things equal, the real surplus:

The United States is a net borrower. If its budget deficits rise faster than GDP, the national debt will:

An increase in the U.S. national debt would be:

Use the following table to determine which statement is true. Year Surplus or deficit (-) billions of dollars 1946 -15.9 1947 4.0 1948 11.8 1949 0.9 1950 -3.1

According to some economists, when a country's debt-to-GDP ratio exceeds 90 percent:

The nominal deficit depends primarily on:

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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