Question 1

With no change in fiscal policy, the budget

Accepted Answer

A) will run a surplus during a recession and a deficit during a boom. 
B) deficit will rise during a recession and fall during a boom. 
C) deficit will fall during a recession and rise during a boom. 
D) will remain unchanged by adverse economic conditions. 
A) will run a surplus during a recession and a deficit during a boom. 
B) deficit will rise during a recession and fall during a boom. 
C) deficit will fall during a recession and rise during a boom. 
D) will remain unchanged by adverse economic conditions.

Question 2

The argument that the national debt imposes a burden on future generations becomes more compelling as

Accepted Answer

A) the percentage of the national debt held by foreigners rises. 
B) tax rates rise. 
C) interest rates fall. 
D) debt service payments (interest) rise. 
A) the percentage of the national debt held by foreigners rises. 
B) tax rates rise. 
C) interest rates fall. 
D) debt service payments (interest) rise.

Question 3

The U.S.government need never default on its debt because

Accepted Answer

A) it can easily nationalize banks, who own all the debt, and then owe it to itself. 
B) it can raise the funds it needs to repay by taxation, and it can print money to repay. 
C) it owes the debt to itself, and it can always ignore a demand for repayment. 
D) it can simply reduce spending enough to generate funds to repay its debt. 
A) it can easily nationalize banks, who own all the debt, and then owe it to itself. 
B) it can raise the funds it needs to repay by taxation, and it can print money to repay. 
C) it owes the debt to itself, and it can always ignore a demand for repayment. 
D) it can simply reduce spending enough to generate funds to repay its debt.

Question 4

Give some arguments for and against a balanced budget requirement.

Accepted Answer

A balanced budget requirement would elim

Question 5

The crowding-out effect is likely to be the strongest during periods of

Accepted Answer

A) recession. 
B) large budget surpluses. 
C) high employment. 
D) expanding money supply. 
A) recession. 
B) large budget surpluses. 
C) high employment. 
D) expanding money supply.

Question 6

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 7

No nation needs default on debts that call for repayment in its own currency.

Accepted Answer

A) True 
 B)False

Question 8

The United States need never pay off the national debt; it can simply refinance the debt when it comes due.The flaw in thinking that the government must pay it off is based on the fallacy of

Accepted Answer

A) benefit-cost ratio. 
B) post hoc, ergo propter hoc. 
C) composition. 
D) a priori expectations. 
A) benefit-cost ratio. 
B) post hoc, ergo propter hoc. 
C) composition. 
D) a priori expectations.

Question 9

Monetary policy is not the only type of policy that affects interest rates.

Accepted Answer

A) True 
 B)False

Question 10

Differentiate between "off-budget" deficit and the "on-budget" deficit.

Accepted Answer

Social Security expenditures and the pay

Question 11

If crowding out occurs, the Main Burden of the debt is

Accepted Answer

A) smaller government assets passed along to the next generation. 
B) smaller capital stock passed along to the next generation. 
C) fewer government services during this generation. 
D) higher debt payments passed along to the next generation. 
A) smaller government assets passed along to the next generation. 
B) smaller capital stock passed along to the next generation. 
C) fewer government services during this generation. 
D) higher debt payments passed along to the next generation.

Question 12

Higher interest rates and, therefore, a decrease in investment spending are most likely to be caused by which policy mix?

Accepted Answer

A) Deficit reduction and expansionary monetary policy 
B) Larger deficits and contractionary monetary policy 
C) Larger deficits and expansionary monetary policy 
D) Deficit reduction and contractionary monetary policy 
A) Deficit reduction and expansionary monetary policy 
B) Larger deficits and contractionary monetary policy 
C) Larger deficits and expansionary monetary policy 
D) Deficit reduction and contractionary monetary policy

Question 13

Crowding in occurs when government spending, by raising Real GDP, induces increases in private investment spending.

Accepted Answer

A) True 
 B)False

Question 14

A budget deficit will be most inflationary if the aggregate

Accepted Answer

A) demand curve is very steep. 
B) demand curve is very flat. 
C) supply curve is very flat. 
D) supply curve is very steep. 
A) demand curve is very steep. 
B) demand curve is very flat. 
C) supply curve is very flat. 
D) supply curve is very steep.

Question 15

As GDP falls, automatic stabilizers run the federal budget in a deficit direction.

Accepted Answer

A) True 
 B)False

Question 16

The strict crowding-out argument relies on the assumption that

Accepted Answer

A) the government must raise taxes to pay for spending, and the tax increase crowds out the stimulative effect of increased spending. 
B) the total flow of saving is a fixed amount. 
C) investment is invariant to interest rates, but very dependent on aggregate spending. 
D) consumption will rise to absorb most of an increase in income, and investment will accordingly fall. 
A) the government must raise taxes to pay for spending, and the tax increase crowds out the stimulative effect of increased spending. 
B) the total flow of saving is a fixed amount. 
C) investment is invariant to interest rates, but very dependent on aggregate spending. 
D) consumption will rise to absorb most of an increase in income, and investment will accordingly fall.

Question 17

The Federal Reserve may choose to monetize the debt in order to

Accepted Answer

A) reduce the burden of the national debt. 
B) shift the supply curve of money outward. 
C) shift the demand curve for money inward. 
D) reduce the volume of reserves in commercial banks. 
A) reduce the burden of the national debt. 
B) shift the supply curve of money outward. 
C) shift the demand curve for money inward. 
D) reduce the volume of reserves in commercial banks.

Question 18

A budget deficit will be least inflationary if the aggregate

Accepted Answer

A) demand curve is very steep. 
B) demand curve is very flat. 
C) supply curve is very flat. 
D) supply curve is very steep. 
A) demand curve is very steep. 
B) demand curve is very flat. 
C) supply curve is very flat. 
D) supply curve is very steep.

Question 19

Budget deficits are inflationary when

Accepted Answer

A) the Federal Reserve contracts the money supply. 
B) the economy has lots of slack and the aggregate supply curve is horizontal. 
C) the economy is at full employment and the aggregate supply curve is vertical. 
D) private citizens buy the bonds to finance the debt. 
A) the Federal Reserve contracts the money supply. 
B) the economy has lots of slack and the aggregate supply curve is horizontal. 
C) the economy is at full employment and the aggregate supply curve is vertical. 
D) private citizens buy the bonds to finance the debt.

Question 20

A serious burden of a budget deficit and an increase in the national debt comes on the supply side because large budget deficits

Accepted Answer

A) discourage consumption and therefore lead to production cutbacks. 
B) lead to lower interest rates and therefore to excessive optimism by consumers and businesspeople. 
C) discourage investment and therefore may reduce the growth of the nation's capital stock. 
D) discourage foreign investment and therefore limit employment opportunities. 
A) discourage consumption and therefore lead to production cutbacks. 
B) lead to lower interest rates and therefore to excessive optimism by consumers and businesspeople. 
C) discourage investment and therefore may reduce the growth of the nation's capital stock. 
D) discourage foreign investment and therefore limit employment opportunities.

Exam 32: Budget Deficits in the Short and Long Run

With no change in fiscal policy, the budget

The argument that the national debt imposes a burden on future generations becomes more compelling as

The U.S.government need never default on its debt because

Give some arguments for and against a balanced budget requirement.

The crowding-out effect is likely to be the strongest during periods of

Why might the Fed decide to monetize the deficit?

No nation needs default on debts that call for repayment in its own currency.

The United States need never pay off the national debt; it can simply refinance the debt when it comes due.The flaw in thinking that the government must pay it off is based on the fallacy of

Monetary policy is not the only type of policy that affects interest rates.

Differentiate between "off-budget" deficit and the "on-budget" deficit.

If crowding out occurs, the Main Burden of the debt is

Higher interest rates and, therefore, a decrease in investment spending are most likely to be caused by which policy mix?

Crowding in occurs when government spending, by raising Real GDP, induces increases in private investment spending.

A budget deficit will be most inflationary if the aggregate

As GDP falls, automatic stabilizers run the federal budget in a deficit direction.

The strict crowding-out argument relies on the assumption that

The Federal Reserve may choose to monetize the debt in order to

A budget deficit will be least inflationary if the aggregate

Budget deficits are inflationary when

A serious burden of a budget deficit and an increase in the national debt comes on the supply side because large budget deficits

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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