Question 1

In the early 1990s, economists became alarmed over the national debt because it

Accepted Answer

A) was larger than three months' GDP. 
B) was growing faster than GDP. 
C) had reached twice the size of GDP. 
D) was growing faster than private debt. 
A) was larger than three months' GDP. 
B) was growing faster than GDP. 
C) had reached twice the size of GDP. 
D) was growing faster than private debt.

Question 2

Why do economists think that the structural deficit is a good measure of the direction of fiscal policy?

Accepted Answer

A) Because it adjusts over the business cycle and reflects the fiscal stimulus of policy. 
B) Because it changes when policy changes, rather than when the economy changes. 
C) Because it changes when monetary policy changes, reflecting the interest rate cost of debt. 
D) Because it adjusts automatically, rather than requiring specific legislation. 
A) Because it adjusts over the business cycle and reflects the fiscal stimulus of policy. 
B) Because it changes when policy changes, rather than when the economy changes. 
C) Because it changes when monetary policy changes, reflecting the interest rate cost of debt. 
D) Because it adjusts automatically, rather than requiring specific legislation.

Question 3

In comparing the changes in actual budget surplus and the structural surplus between 1993 and 1999, it is clear that the

Accepted Answer

A) actual surplus rose less than the structural surplus. 
B) actual surplus and the structural surplus rose about the same. 
C) actual surplus rose much more than the structural surplus. 
D) tax increases of 1993 decreased the structural surplus more than they decreased the actual surplus. 
A) actual surplus rose less than the structural surplus. 
B) actual surplus and the structural surplus rose about the same. 
C) actual surplus rose much more than the structural surplus. 
D) tax increases of 1993 decreased the structural surplus more than they decreased the actual surplus.

Question 4

Most economists agree that the focus of fiscal policy is to

Accepted Answer

A) plan the economy. 
B) balance aggregate demand and aggregate supply. 
C) balance the federal budget. 
D) balance environmental needs and resources. 
A) plan the economy. 
B) balance aggregate demand and aggregate supply. 
C) balance the federal budget. 
D) balance environmental needs and resources.

Question 5

The remarkable fact about the structural deficit after 1983 was that it was

Accepted Answer

A) very high. 
B) very small for a period of economic recovery. 
C) very high during peacetime. 
D) high during Republican administrations. 
A) very high. 
B) very small for a period of economic recovery. 
C) very high during peacetime. 
D) high during Republican administrations.

Question 6

The national debt

Accepted Answer

A) is increased by budget surpluses. 
B) is the value of the government's indebtedness at a moment in time. 
C) exceeded $20 trillion in 2014. 
D) all of the above are correct. 
A) is increased by budget surpluses. 
B) is the value of the government's indebtedness at a moment in time. 
C) exceeded $20 trillion in 2014. 
D) all of the above are correct.

Question 7

The federal budget deficit in 2009 was more than eight times larger than the deficit in 2007.

Accepted Answer

A) True 
 B)False

Question 8

To correct the budget deficit for inflation, we should

Accepted Answer

A) multiply the budget deficit by the price deflator for GDP. 
B) subtract interest payments from tax revenues. 
C) divide the budget deficit by nominal GDP. 
D) divide the budget deficit by the consumer price index. 
A) multiply the budget deficit by the price deflator for GDP. 
B) subtract interest payments from tax revenues. 
C) divide the budget deficit by nominal GDP. 
D) divide the budget deficit by the consumer price index.

Question 9

A budget surplus exists when

Accepted Answer

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

Question 10

In 2010 and 2011, many observers were worried that the

Accepted Answer

A) budget would not be balanced and fiscal stimulus would be withdrawn too soon. 
B) budget would not be balanced and monetary stimulus would be withdrawn too soon. 
C) budget would be balanced and fiscal stimulus would be withdrawn too soon. 
D) budget would be balanced and monetary stimulus would be withdrawn too soon. 
A) budget would not be balanced and fiscal stimulus would be withdrawn too soon. 
B) budget would not be balanced and monetary stimulus would be withdrawn too soon. 
C) budget would be balanced and fiscal stimulus would be withdrawn too soon. 
D) budget would be balanced and monetary stimulus would be withdrawn too soon.

Question 11

Conventional budget accounting practices tend to overstate deficits in inflationary periods because they

Accepted Answer

A) ignore the inflation tax. 
B) confuse repayment of principal with real interest expenditures. 
C) double count some expenditures. 
D) understate real interest rates. 
A) ignore the inflation tax. 
B) confuse repayment of principal with real interest expenditures. 
C) double count some expenditures. 
D) understate real interest rates.

Question 12

The national debt is the

Accepted Answer

A) result of previous budget deficits. 
B) result of rising interest rates. 
C) result of previous budget surpluses. 
D) result of efficient balancing. 
A) result of previous budget deficits. 
B) result of rising interest rates. 
C) result of previous budget surpluses. 
D) result of efficient balancing.

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.At which level of income is the actual deficit the greatest?

Accepted Answer

A) Y4 
B) Y3 
C) Y2 
D) Y1 
A) Y4 
B) Y3 
C) Y2 
D) Y1

Question 14

The budget deficits of the 1980s and early 1990s differ from others in the post-World War II era in that they were

Accepted Answer

A) a result of the Fed rather than a change in fiscal policy. 
B) temporary rather than structural, and pose no threat to the economy. 
C) not contracted to fight a war or end a recession. 
D) contracted as part of a program to plan the economy. 
A) a result of the Fed rather than a change in fiscal policy. 
B) temporary rather than structural, and pose no threat to the economy. 
C) not contracted to fight a war or end a recession. 
D) contracted as part of a program to plan the economy.

Question 15

The principal difference between conventional accounting and economic analysis of inflation is that

Accepted Answer

A) accountants adjust nominal values for inflation. 
B) accountants adjust real values for inflation. 
C) economists adjust nominal values for inflation. 
D) economists adjust real values for inflation. 
A) accountants adjust nominal values for inflation. 
B) accountants adjust real values for inflation. 
C) economists adjust nominal values for inflation. 
D) economists adjust real values for inflation.

Question 16

The crowding-out effect is more likely to dominate the crowding-in effect when investment is relatively

Accepted Answer

A) insensitive to interest rates and to GDP. 
B) insensitive to interest rates but sensitive to GDP. 
C) sensitive to interest rates and to GDP. 
D) sensitive to interest rates and insensitive to GDP. 
A) insensitive to interest rates and to GDP. 
B) insensitive to interest rates but sensitive to GDP. 
C) sensitive to interest rates and to GDP. 
D) sensitive to interest rates and insensitive to GDP.

Question 17

Deficit rises in a recession and falls in a boom, even with no change in fiscal policy.

Accepted Answer

A) True 
 B)False

Question 18

If the U.S.government decided to pay off the national debt by creating money, what would be the most likely effect?

Accepted Answer

A) A substantial reduction in real GDP 
B) A deflationary collapse 
C) Rapid inflation 
D) An increase in the trade surplus 
A) A substantial reduction in real GDP 
B) A deflationary collapse 
C) Rapid inflation 
D) An increase in the trade surplus

Question 19

The central bank is said to monetize the deficit when it purchases bonds issued by the government.

Accepted Answer

A) True 
 B)False

Question 20

If the economy is in an inflationary gap, which of the following is the least appropriate policy mix?

Accepted Answer

A) A budget surplus and expansionary monetary policy 
B) A budget deficit and expansionary monetary policy 
C) A budget deficit and contractionary monetary policy 
D) A budget surplus and contractionary monetary policy 
A) A budget surplus and expansionary monetary policy 
B) A budget deficit and expansionary monetary policy 
C) A budget deficit and contractionary monetary policy 
D) A budget surplus and contractionary monetary policy

Exam 32: Budget Deficits in the Short and Long Run

In the early 1990s, economists became alarmed over the national debt because it

Why do economists think that the structural deficit is a good measure of the direction of fiscal policy?

In comparing the changes in actual budget surplus and the structural surplus between 1993 and 1999, it is clear that the

Most economists agree that the focus of fiscal policy is to

The remarkable fact about the structural deficit after 1983 was that it was

The national debt

The federal budget deficit in 2009 was more than eight times larger than the deficit in 2007.

To correct the budget deficit for inflation, we should

A budget surplus exists when

In 2010 and 2011, many observers were worried that the

Conventional budget accounting practices tend to overstate deficits in inflationary periods because they

The national debt is the

Figure 32-1 ​ -In Figure 32-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.At which level of income is the actual deficit the greatest?

The budget deficits of the 1980s and early 1990s differ from others in the post-World War II era in that they were

The principal difference between conventional accounting and economic analysis of inflation is that

The crowding-out effect is more likely to dominate the crowding-in effect when investment is relatively

Deficit rises in a recession and falls in a boom, even with no change in fiscal policy.

If the U.S.government decided to pay off the national debt by creating money, what would be the most likely effect?

The central bank is said to monetize the deficit when it purchases bonds issued by the government.

If the economy is in an inflationary gap, which of the following is the least appropriate policy mix?

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.At which level of income is the actual deficit the greatest?