Question 1

One measure of "ability to pay" the national debt is the debt to

Accepted Answer

A) GDP ratio. 
B) tax ratio. 
C) spending ratio. 
D) investment ratio. 
A) GDP ratio. 
B) tax ratio. 
C) spending ratio. 
D) investment ratio.

Question 2

A deficit will burden future generations

Accepted Answer

A) because the obligation to pay it off must be faced sooner or later. 
B) if it produces higher interest rates when the economy is near full employment. 
C) because future generations will have to pay taxes to fund the interest payments to Americans who hold the debt. 
D) All of the above are correct. 
A) because the obligation to pay it off must be faced sooner or later. 
B) if it produces higher interest rates when the economy is near full employment. 
C) because future generations will have to pay taxes to fund the interest payments to Americans who hold the debt. 
D) All of the above are correct.

Question 3

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 4

Increases in government spending or tax cuts normally

Accepted Answer

A) pushes interest rates up. 
B) pulls interest rates down. 
C) has no impact on interest rates. 
D) none of these. 
A) pushes interest rates up. 
B) pulls interest rates down. 
C) has no impact on interest rates. 
D) none of these.

Question 5

If the national debt is owned by domestic citizens,

Accepted Answer

A) the debt will not have to be repaid. 
B) future interest payments transfer funds from one group of Americans to another. 
C) the debt will have to be repaid first to domestic creditors, then to foreign creditors. 
D) future interest payments will go to pay foreign debt first, then debt owed to American citizens. 
A) the debt will not have to be repaid. 
B) future interest payments transfer funds from one group of Americans to another. 
C) the debt will have to be repaid first to domestic creditors, then to foreign creditors. 
D) future interest payments will go to pay foreign debt first, then debt owed to American citizens.

Question 6

Under a balanced budget policy, a sharp decline in GDP will cause

Accepted Answer

A) no serious budget changes. 
B) a tax cut or an increase in expenditures. 
C) a tax increase or expenditure cut. 
D) tax receipts to exceed government expenditures. 
A) no serious budget changes. 
B) a tax cut or an increase in expenditures. 
C) a tax increase or expenditure cut. 
D) tax receipts to exceed government expenditures.

Question 7

Expansionary fiscal policy normally raises interest rates.

Accepted Answer

A) True 
 B)False

Question 8

A recessionary gap causes national debt to increase because

Accepted Answer

A) the growth in GDP slows. 
B) interest on previously incurred debt must be paid. 
C) recessionary periods require huge buildups of defense materials. 
D) income tax receipts drop off markedly. 
A) the growth in GDP slows. 
B) interest on previously incurred debt must be paid. 
C) recessionary periods require huge buildups of defense materials. 
D) income tax receipts drop off markedly.

Question 9

Why does the government not have to repay debt, as do private individuals?

Accepted Answer

A) Because the government can ignore creditors and refuse payment. 
B) Because the government, as a dictatorship, is unresponsive to demands for repayment. 
C) Because the government has no debt; it owes it to itself. 
D) Because the government does not have a finite life, as do individuals. 
A) Because the government can ignore creditors and refuse payment. 
B) Because the government, as a dictatorship, is unresponsive to demands for repayment. 
C) Because the government has no debt; it owes it to itself. 
D) Because the government does not have a finite life, as do individuals.

Question 10

The deficit can be defined in simple terms as

Accepted Answer

A) tax receipts − government expenditures + transfers. 
B) tax receipts + government expenditures + transfers. 
C) government expenditures + transfers − tax receipts. 
D) government expenditures − transfers − tax receipts. 
A) tax receipts − government expenditures + transfers. 
B) tax receipts + government expenditures + transfers. 
C) government expenditures + transfers − tax receipts. 
D) government expenditures − transfers − tax receipts.

Question 11

The crowding-in effect results from

Accepted Answer

A) a low MPS. 
B) induced investment. 
C) induced consumption. 
D) rising interest rates. 
A) a low MPS. 
B) induced investment. 
C) induced consumption. 
D) rising interest rates.

Question 12

The appropriate fiscal policy stance depends, at least partly, on the

Accepted Answer

A) stance of trade policy. 
B) stance of monetary policy. 
C) party in power in Congress. 
D) party in power in the presidency. 
A) stance of trade policy. 
B) stance of monetary policy. 
C) party in power in Congress. 
D) party in power in the presidency.

Question 13

Figure 32-1
​  
-In Figure 32-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.Y3 is the full-employment level of income.At Y3

Accepted Answer

A) there is an official deficit but a structural budget balance. 
B) there is a structural deficit but an official budget surplus. 
C) the official and structural deficit are in balance. 
D) both the official and structural budgets show a deficit. 
A) there is an official deficit but a structural budget balance. 
B) there is a structural deficit but an official budget surplus. 
C) the official and structural deficit are in balance. 
D) both the official and structural budgets show a deficit.

Question 14

The U.S.national debt at the end of fiscal year 2014 was almost

Accepted Answer

A) $13.5 trillion. 
B) $9.0 trillion. 
C) $18 trillion. 
D) $1.3 trillion. 
A) $13.5 trillion. 
B) $9.0 trillion. 
C) $18 trillion. 
D) $1.3 trillion.

Question 15

The decisions on the part of the government to increase spending by $5 billion will have the largest impact on aggregate demand when the spending is financed by the sale of bonds to

Accepted Answer

A) the member banks. 
B) the public. 
C) the Fed. 
D) foreigners. 
A) the member banks. 
B) the public. 
C) the Fed. 
D) foreigners.

Question 16

When will the difference between the actual deficit and the structural deficit be the largest?

Accepted Answer

A) In an inflationary gap 
B) At full employment 
C) At potential real GDP 
D) In a recession 
A) In an inflationary gap 
B) At full employment 
C) At potential real GDP 
D) In a recession

Question 17

National debt is likely to fall when

Accepted Answer

A) there is a succession of budget deficits. 
B) government's expenditure falls short of its receipts. 
C) government's expenditures exceed its receipts. 
D) government expenditure equals revenue. 
A) there is a succession of budget deficits. 
B) government's expenditure falls short of its receipts. 
C) government's expenditures exceed its receipts. 
D) government expenditure equals revenue.

Question 18

Same level of fiscal and monetary policy can be generated by _________________________________________, but the composition of GDP will be different in each case.

Accepted Answer

A) more than one mix of fiscal and monetary policy 
B) only fiscal policy 
C) monetary policy 
D) none of these 
A) more than one mix of fiscal and monetary policy 
B) only fiscal policy 
C) monetary policy 
D) none of these

Question 19

In the late 1990s, the more than expected increases in tax revenues were the result of

Accepted Answer

A) rapid economic growth. 
B) rapid increases in the national debt. 
C) rising rates of inflation, and therefore, nominal incomes. 
D) rising balance of trade surpluses and the import duties they generated. 
A) rapid economic growth. 
B) rapid increases in the national debt. 
C) rising rates of inflation, and therefore, nominal incomes. 
D) rising balance of trade surpluses and the import duties they generated.

Question 20

Regarding structural deficits, which of the following assertions is true?

Accepted Answer

A) The structural deficit depends on the state of the economy. 
B) The structural deficit is based on actual expenditures and receipts. 
C) The structural deficit changes only when policy changes. 
D) The structural deficit changes when GDP changes. 
A) The structural deficit depends on the state of the economy. 
B) The structural deficit is based on actual expenditures and receipts. 
C) The structural deficit changes only when policy changes. 
D) The structural deficit changes when GDP changes.

Exam 32: Budget Deficits in the Short and Long Run

One measure of "ability to pay" the national debt is the debt to

A deficit will burden future generations

A mathematical formula for the deficit would be

Increases in government spending or tax cuts normally

If the national debt is owned by domestic citizens,

Under a balanced budget policy, a sharp decline in GDP will cause

Expansionary fiscal policy normally raises interest rates.

A recessionary gap causes national debt to increase because

Why does the government not have to repay debt, as do private individuals?

The deficit can be defined in simple terms as

The crowding-in effect results from

The appropriate fiscal policy stance depends, at least partly, on the

Figure 32-1 ​ -In Figure 32-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.Y3 is the full-employment level of income.At Y3

The U.S.national debt at the end of fiscal year 2014 was almost

The decisions on the part of the government to increase spending by $5 billion will have the largest impact on aggregate demand when the spending is financed by the sale of bonds to

When will the difference between the actual deficit and the structural deficit be the largest?

National debt is likely to fall when

Same level of fiscal and monetary policy can be generated by _________________________________________, but the composition of GDP will be different in each case.

In the late 1990s, the more than expected increases in tax revenues were the result of

Regarding structural deficits, which of the following assertions is true?

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

Filters

Figure 32-1 -In Figure 32-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.Y₃ is the full-employment level of income.At Y₃