Question 1

What happens typically to a budget deficit during a recession?

Accepted Answer

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

Question 2

Larger budget deficits and tighter money tend to produce higher interest rates, a smaller share of investment in GDP, and slower growth.

Accepted Answer

A) True 
 B)False

Question 3

If the Fed decides to keep interest rates low when there is a large budget deficit, economists conclude that the Fed is

Accepted Answer

A) monetizing the debt. 
B) neutralizing the effects of the deficit. 
C) correcting the deficit for inflation. 
D) resisting the effects of the deficit. 
A) monetizing the debt. 
B) neutralizing the effects of the deficit. 
C) correcting the deficit for inflation. 
D) resisting the effects of the deficit.

Question 4

Very recently, the debt-to-GDP ratio has been:

Accepted Answer

A) higher than usual. 
B) lower than usual. 
C) stabilized. 
D) volatile. 
A) higher than usual. 
B) lower than usual. 
C) stabilized. 
D) volatile.

Question 5

How sensitive is the structural deficit to the state of the economy?

Accepted Answer

A) It is insensitive to the state of the economy. 
B) The structural deficit changes cyclically with the economy. 
C) Changes in the structural deficit trigger opposite swings in the economy. 
D) The structural deficit changes countercyclically with the economy. 
A) It is insensitive to the state of the economy. 
B) The structural deficit changes cyclically with the economy. 
C) Changes in the structural deficit trigger opposite swings in the economy. 
D) The structural deficit changes countercyclically with the economy.

Question 6

In the long run, the economy will be near full employment, and crowding out is the stronger force.

Accepted Answer

A) True 
 B)False

Question 7

What is "crowding out"? Why is it important in discussions of fiscal policy? Use an appropriate diagram to illustrate your answer.

Accepted Answer

Crowding out occurs when deficit spendin

Question 8

The portion of national debt owned by foreigners does constitute a burden on the nation as a whole.

Accepted Answer

A) True 
 B)False

Question 9

Deficit is to debt as

Accepted Answer

A) responsible is to irresponsible. 
B) increase is to decrease. 
C) flow is to stock. 
D) important is to unimportant. 
A) responsible is to irresponsible. 
B) increase is to decrease. 
C) flow is to stock. 
D) important is to unimportant.

Question 10

Suppose that the economy is currently at full employment.All other things being equal, if central bank implements contractionary policy, then the appropriate fiscal policy is to

Accepted Answer

A) increase taxes. 
B) reduce government spending. 
C) balance the budget. 
D) increase a budget deficit. 
A) increase taxes. 
B) reduce government spending. 
C) balance the budget. 
D) increase a budget deficit.

Question 11

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 12

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 13

Lower deficits should lead to higher levels of private investment spending.

Accepted Answer

A) True 
 B)False

Question 14

Budget deficit is the amount by which the government's expenditures exceed its receipts during a specified period of time, usually a year.

Accepted Answer

A) True 
 B)False

Question 15

The crowding-in effect depends on the fact that often a decrease in taxes causes a(n)

Accepted Answer

A) decrease in interest rates and an increase in the price of existing bonds. 
B) increase in output, which induces more investment. 
C) increase in interest rates and a decrease in the price of existing bonds. 
D) decrease in interest rates and the price of existing bonds. 
A) decrease in interest rates and an increase in the price of existing bonds. 
B) increase in output, which induces more investment. 
C) increase in interest rates and a decrease in the price of existing bonds. 
D) decrease in interest rates and the price of existing bonds.

Question 16

Why do economists view structural budget deficit as a good measure of the direction of the fiscal policy?

Accepted Answer

Because it is based on the spending and

Question 17

National debt is the result of previous budget deficits.

Accepted Answer

A) True 
 B)False

Question 18

Restrictive fiscal policies

Accepted Answer

A) pull interest rates down. 
B) push interest rates up. 
C) have no impact on interest rates. 
D) none of these. 
A) pull interest rates down. 
B) push interest rates up. 
C) have no impact on interest rates. 
D) none of these.

Question 19

During the late 1980s and early 1990s, most of the budget deficits were accounted for by

Accepted Answer

A) the decline of foreign investment in the United States. 
B) the downturn in the economy. 
C) deliberate fiscal policy changes. 
D) all of the above are correct. 
A) the decline of foreign investment in the United States. 
B) the downturn in the economy. 
C) deliberate fiscal policy changes. 
D) all of the above are correct.

Question 20

Japanese Prime Minister Ryutaro Hashimoto was called the "Herbert Hoover of Japan" because he

Accepted Answer

A) looked like a very distinguished politician. 
B) advocated vast public works to combat unemployment. 
C) advocated budget deficit reduction in the midst of a recession. 
D) advocated easier monetary policy and lower interest rates to combat recession. 
A) looked like a very distinguished politician. 
B) advocated vast public works to combat unemployment. 
C) advocated budget deficit reduction in the midst of a recession. 
D) advocated easier monetary policy and lower interest rates to combat recession.

Exam 32: Budget Deficits in the Short and Long Run

What happens typically to a budget deficit during a recession?

Larger budget deficits and tighter money tend to produce higher interest rates, a smaller share of investment in GDP, and slower growth.

If the Fed decides to keep interest rates low when there is a large budget deficit, economists conclude that the Fed is

Very recently, the debt-to-GDP ratio has been:

How sensitive is the structural deficit to the state of the economy?

In the long run, the economy will be near full employment, and crowding out is the stronger force.

What is "crowding out"? Why is it important in discussions of fiscal policy? Use an appropriate diagram to illustrate your answer.

The portion of national debt owned by foreigners does constitute a burden on the nation as a whole.

Deficit is to debt as

Suppose that the economy is currently at full employment.All other things being equal, if central bank implements contractionary policy, then the appropriate fiscal policy is to

The structural deficit is equal to expenditures

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.

Lower deficits should lead to higher levels of private investment spending.

Budget deficit is the amount by which the government's expenditures exceed its receipts during a specified period of time, usually a year.

The crowding-in effect depends on the fact that often a decrease in taxes causes a(n)

Why do economists view structural budget deficit as a good measure of the direction of the fiscal policy?

National debt is the result of previous budget deficits.

Restrictive fiscal policies

During the late 1980s and early 1990s, most of the budget deficits were accounted for by

Japanese Prime Minister Ryutaro Hashimoto was called the "Herbert Hoover of Japan" because he

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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