Question 1

Structural budget deficit is the hypothetical deficit we would have under current fiscal policies if the economy were operating near full employment.

Accepted Answer

A) True 
 B)False

Question 2

If national debt is owned by domestic citizens, future interest payments just transfer funds from one group of Americans to another.

Accepted Answer

A) True 
 B)False

Question 3

Explain why the portion of the national debt owed to foreigners is a serious matter, whereas the portion owed to U.S.citizens is of less concern.Why does the U.S.national debt pose less of a problem than the debts of Greece in 2010?

Accepted Answer

The portion owed to foreigners will redu

Question 4

The blame for failing to address the budget deficits of the 1980s and early 1990s

Accepted Answer

A) is clearly the fault of the Republican administrations. 
B) is clearly the fault of the Democratic Congresses. 
C) is a political question rather than an economic question. 
D) is an economic question rather than a political question. 
A) is clearly the fault of the Republican administrations. 
B) is clearly the fault of the Democratic Congresses. 
C) is a political question rather than an economic question. 
D) is an economic question rather than a political question.

Question 5

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

Accepted Answer

A) counteract the recession. 
B) worsen and prolong the recession. 
C) end the recession sooner. 
D) increase the level of real GDP. 
A) counteract the recession. 
B) worsen and prolong the recession. 
C) end the recession sooner. 
D) increase the level of real GDP.

Question 6

The American national debt is an obligation to pay U.S.$.

Accepted Answer

A) True 
 B)False

Question 7

The crowding-in effect depends on the sensitivity of investment to

Accepted Answer

A) GDP, as does the crowding-out effect. 
B) interest rates, whereas the crowding-out effect depends on the sensitivity of investment to GDP. 
C) interest rates, as does the crowding-out effect. 
D) GDP, whereas the crowding-out effect depends on the sensitivity of investment to interest rates. 
A) GDP, as does the crowding-out effect. 
B) interest rates, whereas the crowding-out effect depends on the sensitivity of investment to GDP. 
C) interest rates, as does the crowding-out effect. 
D) GDP, whereas the crowding-out effect depends on the sensitivity of investment to interest rates.

Question 8

Which of the following is expected to increase aggregate demand in the short run?

Accepted Answer

A) Deficit budget 
B) Surplus budget 
C) Zero based budget 
D) Balanced budget 
A) Deficit budget 
B) Surplus budget 
C) Zero based budget 
D) Balanced budget

Question 9

Crowding out can best be defined as

Accepted Answer

A) higher interest rates caused by restrictive monetary policy, which reduces investment. 
B) higher interest rates caused by restrictive monetary policy, which increases saving and reduces consumption spending. 
C) government budget deficits causing a drop in private borrowing because of higher interest rates. 
D) government budget deficits causing a drop in interest rates, which reduces private saving. 
A) higher interest rates caused by restrictive monetary policy, which reduces investment. 
B) higher interest rates caused by restrictive monetary policy, which increases saving and reduces consumption spending. 
C) government budget deficits causing a drop in private borrowing because of higher interest rates. 
D) government budget deficits causing a drop in interest rates, which reduces private saving.

Question 10

Restrictive fiscal policies pull interest rates down.

Accepted Answer

A) True 
 B)False

Question 11

Budget deficits are even more inflationary if they are monetized.

Accepted Answer

A) True 
 B)False

Question 12

If a larger fraction of GDP is devoted to ___________, nation's capital stock will grow faster and the aggregate supply curve will shift more quickly to the right, accelerating growth.

Accepted Answer

A) investments 
B) consumption 
C) trade 
D) none of these 
A) investments 
B) consumption 
C) trade 
D) none of these

Question 13

There is a fundamental difference between nations that borrow in their own currency (such as the United States) and nations that borrow in some other currency (often the U.S.dollar).

Accepted Answer

A) True 
 B)False

Question 14

The net national debt is smaller than the gross national debt because

Accepted Answer

A) some debt is held by foreigners. 
B) some debt is held by U.S.citizens. 
C) some debt is held by government agencies. 
D) the government does not have to pay all of the debt. 
A) some debt is held by foreigners. 
B) some debt is held by U.S.citizens. 
C) some debt is held by government agencies. 
D) the government does not have to pay all of the debt.

Question 15

If the economy suffers a recession for reasons unrelated to fiscal policy, the deficit should rise and

Accepted Answer

A) inflation should fall. 
B) interest rates should fall. 
C) real GDP should fall. 
D) all of the above are correct. 
A) inflation should fall. 
B) interest rates should fall. 
C) real GDP should fall. 
D) all of the above are correct.

Question 16

In the short run, and especially when unemployment is high, crowding in is the stronger force.The short-run effects of government's financial rescue program and fiscal stimulus package helped the economy increase aggregate demand curing the Great Recession.

Accepted Answer

A) True 
 B)False

Question 17

Describe the particular policy mix that accounts for the favorable economic conditions of the late 1990s.Be sure to specify the fiscal and monetary policies pursued during this period.

Accepted Answer

Through a combination of government spen

Question 18

The structural deficit does not depend on the state of the economy.

Accepted Answer

A) True 
 B)False

Question 19

When (if at all) are budget deficits inflationary?

Accepted Answer

A) When AS is perfectly horizontal 
B) When AS has a very steep slope 
C) When AS has a downward slope 
D) When AS intersects AD 
A) When AS is perfectly horizontal 
B) When AS has a very steep slope 
C) When AS has a downward slope 
D) When AS intersects AD

Question 20

The policy mix that the Clinton administration sought in early 1993 was a

Accepted Answer

A) smaller budget deficit and tighter monetary policy. 
B) smaller budget deficit and looser monetary policy. 
C) larger budget deficit and looser monetary policy. 
D) larger budget deficit and tighter monetary policy. 
A) smaller budget deficit and tighter monetary policy. 
B) smaller budget deficit and looser monetary policy. 
C) larger budget deficit and looser monetary policy. 
D) larger budget deficit and tighter monetary policy.

Exam 32: Budget Deficits in the Short and Long Run

Structural budget deficit is the hypothetical deficit we would have under current fiscal policies if the economy were operating near full employment.

If national debt is owned by domestic citizens, future interest payments just transfer funds from one group of Americans to another.

Explain why the portion of the national debt owed to foreigners is a serious matter, whereas the portion owed to U.S.citizens is of less concern.Why does the U.S.national debt pose less of a problem than the debts of Greece in 2010?

The blame for failing to address the budget deficits of the 1980s and early 1990s

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

The American national debt is an obligation to pay U.S.$.

The crowding-in effect depends on the sensitivity of investment to

Which of the following is expected to increase aggregate demand in the short run?

Crowding out can best be defined as

Restrictive fiscal policies pull interest rates down.

Budget deficits are even more inflationary if they are monetized.

If a larger fraction of GDP is devoted to ___________, nation's capital stock will grow faster and the aggregate supply curve will shift more quickly to the right, accelerating growth.

There is a fundamental difference between nations that borrow in their own currency (such as the United States) and nations that borrow in some other currency (often the U.S.dollar).

The net national debt is smaller than the gross national debt because

If the economy suffers a recession for reasons unrelated to fiscal policy, the deficit should rise and

In the short run, and especially when unemployment is high, crowding in is the stronger force.The short-run effects of government's financial rescue program and fiscal stimulus package helped the economy increase aggregate demand curing the Great Recession.

Describe the particular policy mix that accounts for the favorable economic conditions of the late 1990s.Be sure to specify the fiscal and monetary policies pursued during this period.

The structural deficit does not depend on the state of the economy.

When (if at all) are budget deficits inflationary?

The policy mix that the Clinton administration sought in early 1993 was a

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

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