Question 1

A budget deficit is best defined as the

Accepted Answer

A)  shortage of spending power created by a government spending cut. 
B)  shortage of spending power created by a tax increase. 
C)  accumulation of past debt that has not been covered by taxes. 
D)  amount by which a government's expenditures exceed receipts during a specific time period. 
A)  shortage of spending power created by a government spending cut. 
B)  shortage of spending power created by a tax increase. 
C)  accumulation of past debt that has not been covered by taxes. 
D)  amount by which a government's expenditures exceed receipts during a specific time period.

Question 2

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 3

In the late 1990s, the more than expected increases in tax revenues were the result of

Accepted Answer

A)  rapid economic growth. 
B)  rapid increases in the national debt. 
C)  rising rates of inflation, and therefore, nominal incomes. 
D)  rising balance of trade surpluses and the import duties they generated. 
A)  rapid economic growth. 
B)  rapid increases in the national debt. 
C)  rising rates of inflation, and therefore, nominal incomes. 
D)  rising balance of trade surpluses and the import duties they generated.

Question 4

What is the difference between the deficit and the debt?

Accepted Answer

The budget deficit is the difference ove

Question 5

If the President and Congress agree to balance the budget during a recession, then the appropriate monetary policy is

Accepted Answer

A)  no change from the current policy. 
B)  reduce the growth of the money supply. 
C)  constant growth of the money supply. 
D)  increase the growth of the money supply. 
A)  no change from the current policy. 
B)  reduce the growth of the money supply. 
C)  constant growth of the money supply. 
D)  increase the growth of the money supply.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

The structural deficit can be used to estimate the thrust of current fiscal policy.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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 10

National debt is the federal government's total indebtedness at a moment in time.

Accepted Answer

A) True 
 B)False

Question 11

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 12

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 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

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 15

If you wanted to measure changes in fiscal policy intentions, you should use the

Accepted Answer

A)  capital budget. 
B)  actual deficit. 
C)  inflation-accounted deficit. 
D)  structural deficit. 
A)  capital budget. 
B)  actual deficit. 
C)  inflation-accounted deficit. 
D)  structural deficit.

Question 16

Composition of aggregate demand is a major determinant of the economy's long-run economic growth rate.

Accepted Answer

A) True 
 B)False

Question 17

Figure 32-2
 
Assume that a contractionary monetary policy has shifted the aggregate demand curve in Figure 32-2 from D0D0 to D1D1. Fiscal authorities who wish to restore real GDP to the full-employment level will

Accepted Answer

A)  run a budget surplus by increasing taxes or cutting government spending. 
B)  run a balanced budget to prevent the interest rate from rising and cutting off investment. 
C)  run a budget deficit by cutting taxes or increasing government spending. 
D)  ignore the change in monetary policy since it has no effect on fiscal policy. 
A)  run a budget surplus by increasing taxes or cutting government spending. 
B)  run a balanced budget to prevent the interest rate from rising and cutting off investment. 
C)  run a budget deficit by cutting taxes or increasing government spending. 
D)  ignore the change in monetary policy since it has no effect on fiscal policy.

Question 18

Figure 32-2
 
Suppose that Figure 32-2 shows the effects of reducing the budget deficit by raising taxes. If authorities do not want real GDP to fall, monetary policy must

Accepted Answer

A)  become sufficiently more expansionary to restore the aggregate demand curve to D0D0. 
B)  contract aggregate demand to be consistent with deficit-reducing fiscal policy. 
C)  not lower interest rates and thwart the goal of a balanced budget. 
D)  become more contractionary to lower the interest rate and spur investment. 
A)  become sufficiently more expansionary to restore the aggregate demand curve to D0D0. 
B)  contract aggregate demand to be consistent with deficit-reducing fiscal policy. 
C)  not lower interest rates and thwart the goal of a balanced budget. 
D)  become more contractionary to lower the interest rate and spur investment.

Question 19

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 20

From 2004 to 2008, the federal budget deficit, on an official fiscal-year basis, was

Accepted Answer

A)  large and growing larger. 
B)  "negative," that is, the budget was in surplus. 
C)  declining. 
D)  increased by the rising Social Security deficit. 
A)  large and growing larger. 
B)  "negative," that is, the budget was in surplus. 
C)  declining. 
D)  increased by the rising Social Security deficit.

Exam 32: Budget Deficits in the Short and Long Run

A budget deficit is best defined as the

What happens typically to a budget deficit during a recession?

In the late 1990s, the more than expected increases in tax revenues were the result of

What is the difference between the deficit and the debt?

If the President and Congress agree to balance the budget during a recession, then the appropriate monetary policy is

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

The structural deficit can be used to estimate the thrust of current fiscal policy.

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

The argument that budget deficits are inflationary is

National debt is the federal government's total indebtedness at a moment in time.

When (if at all) are budget deficits inflationary?

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

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

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

If you wanted to measure changes in fiscal policy intentions, you should use the

Composition of aggregate demand is a major determinant of the economy's long-run economic growth rate.

Figure 32-2 Assume that a contractionary monetary policy has shifted the aggregate demand curve in Figure 32-2 from D0D0 to D1D1. Fiscal authorities who wish to restore real GDP to the full-employment level will

Figure 32-2 Suppose that Figure 32-2 shows the effects of reducing the budget deficit by raising taxes. If authorities do not want real GDP to fall, monetary policy must

Most economists agree that the focus of fiscal policy is to

From 2004 to 2008, the federal budget deficit, on an official fiscal-year basis, was

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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 Us Economy

Filters

Figure 32-2 Assume that a contractionary monetary policy has shifted the aggregate demand curve in Figure 32-2 from D₀D₀ to D₁D₁. Fiscal authorities who wish to restore real GDP to the full-employment level will