Question 1

The "crowding out" effect states that government spending pushes up interest rates and reduces private investment spending.

Accepted Answer

A) True 
 B)False

Question 2

The structural deficit is equal to expenditures

Accepted Answer

A)  plus transfers less taxes for the fiscal year in government statistics. 
B)  less taxes at some hypothetical high employment level. 
C)  plus transfers less taxes at some hypothetical high employment level. 
D)  less transfers for the fiscal year in government statistics. 
A)  plus transfers less taxes for the fiscal year in government statistics. 
B)  less taxes at some hypothetical high employment level. 
C)  plus transfers less taxes at some hypothetical high employment level. 
D)  less transfers for the fiscal year in government statistics.

Question 3

The portion of the national debt owned by foreigners does constitute a burden to the U.S.

Accepted Answer

A) True 
 B)False

Question 4

Appropriate fiscal policy depends on the other major tool of governmental stabilization policy:

Accepted Answer

A)  trade policy. 
B)  tax policy. 
C)  monetary policy. 
D)  labor market policy. 
A)  trade policy. 
B)  tax policy. 
C)  monetary policy. 
D)  labor market policy.

Question 5

Contractionary fiscal policies used to reduce the deficit in the 1990s did not hurt the economy because fiscal and monetary policies were well coordinated at that time.

Accepted Answer

A) True 
 B)False

Question 6

Monetizing deficits has lead to serious inflation in

Accepted Answer

A)  the United States. 
B)  Canada. 
C)  the United Kingdom. 
D)  Russia, Latin America, and Israel. 
E)  All of the above are correct. 
A)  the United States. 
B)  Canada. 
C)  the United Kingdom. 
D)  Russia, Latin America, and Israel. 
E)  All of the above are correct.

Question 7

In contrast to the on-budget deficit, the off-budget deficit in 2009 was

Accepted Answer

A)  somewhat smaller. 
B)  remaining constant. 
C)  even larger. 
D)  an actual surplus. 
A)  somewhat smaller. 
B)  remaining constant. 
C)  even larger. 
D)  an actual surplus.

Question 8

If the inflation rate falls, what will happen to the budget deficit?

Accepted Answer

A)  It will rise, because government spending will rise. 
B)  It will rise, because interest payments will rise. 
C)  It will fall, because tax receipts will increase. 
D)  It will fall, because interest payments will fall. 
A)  It will rise, because government spending will rise. 
B)  It will rise, because interest payments will rise. 
C)  It will fall, because tax receipts will increase. 
D)  It will fall, because interest payments will fall.

Question 9

When budget deficits take place in a high-employment economy, the effect is an increase in capital stock.

Accepted Answer

A) True 
 B)False

Question 10

Define the following terms and explain their importance to the study of macroeconomics:
a.structural budget deficit
b.monetize the deficit
c.crowding out
d.inflation accounting
e.mix of fiscal and monetary policy

Accepted Answer

a.The structural budget deficit is the h

Question 11

The national debt

Accepted Answer

A)  is increased by budget surpluses. 
B)  is the value of the government's indebtedness at a moment in time. 
C)  exceeded $20 trillion in 2010. 
D)  All of the above are correct. 
A)  is increased by budget surpluses. 
B)  is the value of the government's indebtedness at a moment in time. 
C)  exceeded $20 trillion in 2010. 
D)  All of the above are correct.

Question 12

Why might the Fed decide to monetize the deficit?

Accepted Answer

A)  to keep inflation low 
B)  to reduce the structural deficit 
C)  to reduce the budget deficit 
D)  to keep interest rates low 
A)  to keep inflation low 
B)  to reduce the structural deficit 
C)  to reduce the budget deficit 
D)  to keep interest rates low

Question 13

Lately, the ratio of debt to GDP has been

Accepted Answer

A)  rising at a small rate. 
B)  rising steadily. 
C)  falling modestly. 
D)  staying constant. 
A)  rising at a small rate. 
B)  rising steadily. 
C)  falling modestly. 
D)  staying constant.

Question 14

To maintain a balanced budget during the sag in personal spending in 2008 could cause a

Accepted Answer

A)  further increase in aggregate demand and inflation. 
B)  further increase in aggregate demand and unemployment. 
C)  further decrease in aggregate demand and a recession. 
D)  further decrease in aggregate demand and inflation. 
A)  further increase in aggregate demand and inflation. 
B)  further increase in aggregate demand and unemployment. 
C)  further decrease in aggregate demand and a recession. 
D)  further decrease in aggregate demand and inflation.

Question 15

"Crowding-out" refers to the process by which

Accepted Answer

A)  high consumption leads to low saving and investment. 
B)  the Fed prevents "runs" on banks. 
C)  Fed sales of bonds reduce the ability of corporations to buy bonds. 
D)  increased government spending raises interest rates, thus lowering investment spending. 
A)  high consumption leads to low saving and investment. 
B)  the Fed prevents "runs" on banks. 
C)  Fed sales of bonds reduce the ability of corporations to buy bonds. 
D)  increased government spending raises interest rates, thus lowering investment spending.

Question 16

The structural deficit or surplus

Accepted Answer

A)  shows the government where to make cuts in expenditures to follow the balanced budget requirement. 
B)  reveals the complicated structure underlying government spending and tax policy. 
C)  is the hypothetical deficit or surplus under current fiscal policies if the economy were operating near full employment. 
D)  includes all government budgets-federal, state, and local. 
A)  shows the government where to make cuts in expenditures to follow the balanced budget requirement. 
B)  reveals the complicated structure underlying government spending and tax policy. 
C)  is the hypothetical deficit or surplus under current fiscal policies if the economy were operating near full employment. 
D)  includes all government budgets-federal, state, and local.

Question 17

If the economy is in an inflationary gap, and the government attempts to balance the budget, the effect will be to

Accepted Answer

A)  counteract inflation. 
B)  reduce the trade deficit. 
C)  continue inflationary pressures. 
D)  increase unemployment. 
A)  counteract inflation. 
B)  reduce the trade deficit. 
C)  continue inflationary pressures. 
D)  increase unemployment.

Question 18

A mathematical formula for the deficit would be

Accepted Answer

A)  C + I + G - Transfers + Taxes 
B)  C + I + G + Transfers - Taxes 
C)  I + G + Transfers - Taxes 
D)  G + Transfers - Taxes 
A)  C + I + G - Transfers + Taxes 
B)  C + I + G + Transfers - Taxes 
C)  I + G + Transfers - Taxes 
D)  G + Transfers - Taxes

Question 19

What happens typically to a budget deficit during an economic recovery?

Accepted Answer

A)  It decreases because of tax changes. 
B)  It increases because of spending decreases. 
C)  It decreases automatically. 
D)  It increases automatically. 
A)  It decreases because of tax changes. 
B)  It increases because of spending decreases. 
C)  It decreases automatically. 
D)  It increases automatically.

Question 20

Analysis indicates that the economy is in a recessionary gap.Which of the following is the least appropriate policy mix in this situation?

Accepted Answer

A)  a budget surplus and expansionary monetary policy 
B)  a budget deficit and expansionary monetary policy 
C)  a budget deficit and contractionary monetary policy 
D)  a budget surplus and contractionary monetary policy 
A)  a budget surplus and expansionary monetary policy 
B)  a budget deficit and expansionary monetary policy 
C)  a budget deficit and contractionary monetary policy 
D)  a budget surplus and contractionary monetary policy

Exam 33: Budget Deficits in the Short and Long Run

The "crowding out" effect states that government spending pushes up interest rates and reduces private investment spending.

The structural deficit is equal to expenditures

The portion of the national debt owned by foreigners does constitute a burden to the U.S.

Appropriate fiscal policy depends on the other major tool of governmental stabilization policy:

Contractionary fiscal policies used to reduce the deficit in the 1990s did not hurt the economy because fiscal and monetary policies were well coordinated at that time.

Monetizing deficits has lead to serious inflation in

In contrast to the on-budget deficit, the off-budget deficit in 2009 was

If the inflation rate falls, what will happen to the budget deficit?

When budget deficits take place in a high-employment economy, the effect is an increase in capital stock.

Define the following terms and explain their importance to the study of macroeconomics: a.structural budget deficit b.monetize the deficit c.crowding out d.inflation accounting e.mix of fiscal and monetary policy

The national debt

Why might the Fed decide to monetize the deficit?

Lately, the ratio of debt to GDP has been

To maintain a balanced budget during the sag in personal spending in 2008 could cause a

"Crowding-out" refers to the process by which

The structural deficit or surplus

If the economy is in an inflationary gap, and the government attempts to balance the budget, the effect will be to

A mathematical formula for the deficit would be

What happens typically to a budget deficit during an economic recovery?

Analysis indicates that the economy is in a recessionary gap.Which of the following is the least appropriate policy mix in this situation?

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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