Question 1

Which of the following is true regarding the effect of deficits from 1980 to 2005 in the United States?

Accepted Answer

A) They did not lead to substantial inflation because the Fed did not monetize the deficits. 
B) They did not lead to substantial inflation because the Fed did monetize the deficits. 
C) They led to substantial inflation because the Fed did not monetize the deficits. 
D) They led to substantial inflation because the Fed did monetize the deficits. 
A) They did not lead to substantial inflation because the Fed did not monetize the deficits. 
B) They did not lead to substantial inflation because the Fed did monetize the deficits. 
C) They led to substantial inflation because the Fed did not monetize the deficits. 
D) They led to substantial inflation because the Fed did monetize the deficits.

Question 2

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 3

In 2010, which of the following was true regarding the extremely large deficits that the United States recently encountered?

Accepted Answer

A) Most politicians and economists argued that the deficit had to be reduced. 
B) Most politicians argued that the deficit had to be reduced but economists cautioned against this course of action. 
C) Most economists argued that the deficit had to be reduced but politicians cautioned against this course of action. 
D) Both politicians and economist cautioned against deficit reduction. 
A) Most politicians and economists argued that the deficit had to be reduced. 
B) Most politicians argued that the deficit had to be reduced but economists cautioned against this course of action. 
C) Most economists argued that the deficit had to be reduced but politicians cautioned against this course of action. 
D) Both politicians and economist cautioned against deficit reduction.

Question 4

The structural deficit can be defined as

Accepted Answer

A) the deficit that is structurally obstructing economic recovery to reach level of high employment. 
B) a hypothetical construct that estimates the deficit, given current tax rates and expenditure policies, if the economy were operating at some fixed high-employment level. 
C) the deficit necessary to restructure the economy and reach a desired high-employment level. 
D) the deficit that would prevail if fiscal policy were structured differently in order to reach a desired high-employment level. 
A) the deficit that is structurally obstructing economic recovery to reach level of high employment. 
B) a hypothetical construct that estimates the deficit, given current tax rates and expenditure policies, if the economy were operating at some fixed high-employment level. 
C) the deficit necessary to restructure the economy and reach a desired high-employment level. 
D) the deficit that would prevail if fiscal policy were structured differently in order to reach a desired high-employment level.

Question 5

A large national debt can lead to a nation to bequeath less capital to future generations.

Accepted Answer

A) True 
 B)False

Question 6

E.Carey Brown, an MIT economist, studied government deficits during the Great Depression and found that even though actual deficits were large, the structural deficit changed very little.Which of the following statements is consistent with this finding?

Accepted Answer

A) Fiscal policy did not work during the Depression. 
B) Fiscal policy made the Depression worse. 
C) Fiscal policy was not tried during the Depression. 
D) Fiscal policy improved the economy during the Depression. 
A) Fiscal policy did not work during the Depression. 
B) Fiscal policy made the Depression worse. 
C) Fiscal policy was not tried during the Depression. 
D) Fiscal policy improved the economy during the Depression.

Question 7

The argument that budget deficits are inflationary is

Accepted Answer

A) always correct. 
B) correct only when the deficit is monetized. 
C) correct only when the aggregate supply curve is horizontal. 
D) correct only when the aggregate supply curve is upward sloping. 
A) always correct. 
B) correct only when the deficit is monetized. 
C) correct only when the aggregate supply curve is horizontal. 
D) correct only when the aggregate supply curve is upward sloping.

Question 8

Until the 1980s, most of the national debt was

Accepted Answer

A) owned by foreigners. 
B) acquired either during wars, especially World War II, or during recessions. 
C) owned by banks. 
D) financed by printing money. 
A) owned by foreigners. 
B) acquired either during wars, especially World War II, or during recessions. 
C) owned by banks. 
D) financed by printing money.

Question 9

In 2009, the Social Security System ran a surplus of approximately $137 billion.

Accepted Answer

A) True 
 B)False

Question 10

Argentina in 2001 faced a debt problem more serious than the U.S.debt problem because Argentina was obligated to repay its debt in

Accepted Answer

A) U.S.dollars. 
B) their own currencies. 
C) a relatively short period of time. 
D) large installments. 
A) U.S.dollars. 
B) their own currencies. 
C) a relatively short period of time. 
D) large installments.

Question 11

Crowding out occurs when

Accepted Answer

A) increased taxes force higher levels of national saving. 
B) deficit spending by the government forces private investment spending to contract. 
C) local businesses cannot get government contracts because of the higher bids of large corporations. 
D) foreign investors are willing to pay higher prices for U.S.bonds than American citizens will pay. 
A) increased taxes force higher levels of national saving. 
B) deficit spending by the government forces private investment spending to contract. 
C) local businesses cannot get government contracts because of the higher bids of large corporations. 
D) foreign investors are willing to pay higher prices for U.S.bonds than American citizens will pay.

Question 12

The structural deficit is determined by established expenditure-transfer policies and tax rates and is independent of the current level of GDP.

Accepted Answer

A) True 
 B)False

Question 13

Proponents of deficit reduction argue that the principal effect will be an

Accepted Answer

A) outward shift of the aggregate supply curve. 
B) inward shift of the aggregate supply curve. 
C) outward shift of the aggregate demand curve. 
D) inward shift of the aggregate demand curve. 
A) outward shift of the aggregate supply curve. 
B) inward shift of the aggregate supply curve. 
C) outward shift of the aggregate demand curve. 
D) inward shift of the aggregate demand curve.

Question 14

Between 2009 and 2013,

Accepted Answer

A) both the actual and the structural deficit fell substantially. 
B) both the actual and the structural deficit rose substantially. 
C) the actual deficit rose, while the structural deficit fell substantially. 
D) the structural deficit rose, while the actual deficit fell substantially. 
A) both the actual and the structural deficit fell substantially. 
B) both the actual and the structural deficit rose substantially. 
C) the actual deficit rose, while the structural deficit fell substantially. 
D) the structural deficit rose, while the actual deficit fell substantially.

Question 15

Which of the following statements about the national debt has the most validity?

Accepted Answer

A) Our large national debt can bankrupt the nation. 
B) If only Americans hold the debt, then payments of interest and principal are simply transfers from some Americans to other Americans. 
C) Our large national debt can lead to subjection by the people (especially foreigners) who hold the debt. 
D) The national debt represents a burden to future generations who will have to make huge payments of interest and principal. 
A) Our large national debt can bankrupt the nation. 
B) If only Americans hold the debt, then payments of interest and principal are simply transfers from some Americans to other Americans. 
C) Our large national debt can lead to subjection by the people (especially foreigners) who hold the debt. 
D) The national debt represents a burden to future generations who will have to make huge payments of interest and principal.

Question 16

If the Fed is increasing its holdings of government bonds at the same time the federal deficit is increasing,

Accepted Answer

A) the Fed and the Treasury are, as usual, coordinating activities. 
B) crowding out is more likely to occur. 
C) the debt is being monetized. 
D) the Fed is attempting to increase interest rates. 
A) the Fed and the Treasury are, as usual, coordinating activities. 
B) crowding out is more likely to occur. 
C) the debt is being monetized. 
D) the Fed is attempting to increase interest rates.

Question 17

If the national debt is owed to foreigners,

Accepted Answer

A) the debt constitutes a burden to domestic citizens. 
B) economic growth will necessarily be higher than if the debt were owed to domestic citizens. 
C) paying off the debt will involve a transfer of resources within the country. 
D) future interest payments on the debt are not a burden to the nation. 
A) the debt constitutes a burden to domestic citizens. 
B) economic growth will necessarily be higher than if the debt were owed to domestic citizens. 
C) paying off the debt will involve a transfer of resources within the country. 
D) future interest payments on the debt are not a burden to the nation.

Question 18

If a budget deficit increases interest rates, it is possible that investment will

Accepted Answer

A) fall, leading to a larger capital stock. 
B) fall, so that there is a smaller capital stock. 
C) rise, because investment is directly related to interest rates. 
D) rise, because investment is more attractive when interest rates are higher. 
A) fall, leading to a larger capital stock. 
B) fall, so that there is a smaller capital stock. 
C) rise, because investment is directly related to interest rates. 
D) rise, because investment is more attractive when interest rates are higher.

Question 19

U.S.national debt at the end of the fiscal year 2018 was

Accepted Answer

A) over $21 trillion. 
B) over $31 trillion. 
C) $45 trillion. 
D) $50 trillion. 
A) over $21 trillion. 
B) over $31 trillion. 
C) $45 trillion. 
D) $50 trillion.

Question 20

In the short run, the dominant effect of deficit reduction causes an

Accepted Answer

A) outward shift of the aggregate supply curve. 
B) inward shift of the aggregate supply curve. 
C) outward shift of the aggregate demand curve. 
D) inward shift of the aggregate demand curve. 
A) outward shift of the aggregate supply curve. 
B) inward shift of the aggregate supply curve. 
C) outward shift of the aggregate demand curve. 
D) inward shift of the aggregate demand curve.

Exam 32: Budget Deficits in the Short and Long Run

Which of the following is true regarding the effect of deficits from 1980 to 2005 in the United States?

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

In 2010, which of the following was true regarding the extremely large deficits that the United States recently encountered?

The structural deficit can be defined as

A large national debt can lead to a nation to bequeath less capital to future generations.

E.Carey Brown, an MIT economist, studied government deficits during the Great Depression and found that even though actual deficits were large, the structural deficit changed very little.Which of the following statements is consistent with this finding?

The argument that budget deficits are inflationary is

Until the 1980s, most of the national debt was

In 2009, the Social Security System ran a surplus of approximately $137 billion.

Argentina in 2001 faced a debt problem more serious than the U.S.debt problem because Argentina was obligated to repay its debt in

Crowding out occurs when

The structural deficit is determined by established expenditure-transfer policies and tax rates and is independent of the current level of GDP.

Proponents of deficit reduction argue that the principal effect will be an

Between 2009 and 2013,

Which of the following statements about the national debt has the most validity?

If the Fed is increasing its holdings of government bonds at the same time the federal deficit is increasing,

If the national debt is owed to foreigners,

If a budget deficit increases interest rates, it is possible that investment will

U.S.national debt at the end of the fiscal year 2018 was

In the short run, the dominant effect of deficit reduction causes an

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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