Question 1

The right measure of fiscal policy is

Accepted Answer

A)  the government's cash deficit or surplus. 
B)  the government's monetary policy. 
C)  the level of tax revenue. 
D)  the full-employment or cyclically-adjusted deficit or surplus. 
A)  the government's cash deficit or surplus. 
B)  the government's monetary policy. 
C)  the level of tax revenue. 
D)  the full-employment or cyclically-adjusted deficit or surplus.

Question 2

In the short-run, the effect on real GDP of a government budget deficit produced by a tax cut will be neutralized if

Accepted Answer

A)  the Federal Reserve loosens monetary policy, which shifts the LM curve to the right and lowers real interest rates. 
B)  the Federal Reserve tightens monetary policy, which shifts the IS curve to the left and raises real interest rates. 
C)  the Federal Reserve tightens monetary policy, which shifts the LM curve to the left and raises real interest rates. 
D)  the Federal Reserve loosens monetary policy, which shifts the IS curve to the right and raises real interest rates. 
A)  the Federal Reserve loosens monetary policy, which shifts the LM curve to the right and lowers real interest rates. 
B)  the Federal Reserve tightens monetary policy, which shifts the IS curve to the left and raises real interest rates. 
C)  the Federal Reserve tightens monetary policy, which shifts the LM curve to the left and raises real interest rates. 
D)  the Federal Reserve loosens monetary policy, which shifts the IS curve to the right and raises real interest rates.

Question 3

Fiscal policy is sustainable if

Accepted Answer

A)  the debt-to-money supply ratio is heading for a steady state. 
B)  the debt-to-government spending ratio is heading for a steady state. 
C)  the debt-to GDP ratio is heading for a steady state. 
D)  the deficit-to-debt ratio is heading toward a steady state. 
A)  the debt-to-money supply ratio is heading for a steady state. 
B)  the debt-to-government spending ratio is heading for a steady state. 
C)  the debt-to GDP ratio is heading for a steady state. 
D)  the deficit-to-debt ratio is heading toward a steady state.

Question 4

Higher full-employment deficits

Accepted Answer

A)  shift the IS curve to the right, raise real interest rates, and reduce consumption spending. 
B)  shift the IS curve to the right, raise real interest rates, and reduce investment spending. 
C)  shift the IS curve to the left, lower interest rates, and increase investment spending. 
D)  shift the IS curve to the left, lower interest rates, and increase consumption spending. 
A)  shift the IS curve to the right, raise real interest rates, and reduce consumption spending. 
B)  shift the IS curve to the right, raise real interest rates, and reduce investment spending. 
C)  shift the IS curve to the left, lower interest rates, and increase investment spending. 
D)  shift the IS curve to the left, lower interest rates, and increase consumption spending.

Question 5

If the labor force growth rate increases,

Accepted Answer

A)  the equilibrium debt-to-GDP ratio will decrease. 
B)  the equilibrium deficit-to-GDP ratio will decrease. 
C)  the equilibrium debt-to-GDP ratio will increase. 
D)  the equilibrium deficit-to-GDP ratio will increase. 
A)  the equilibrium debt-to-GDP ratio will decrease. 
B)  the equilibrium deficit-to-GDP ratio will decrease. 
C)  the equilibrium debt-to-GDP ratio will increase. 
D)  the equilibrium deficit-to-GDP ratio will increase.

Question 6

A decrease in the government's budget deficit

Accepted Answer

A)  will lead to a decrease in imports, a depreciated dollar, an increase in exports, and a decrease in the international trade deficit. 
B)  will lead to an increase in imports, an appreciated dollar, a decrease in exports, and an increase in the international trade deficit. 
C)  will lead to an increase in imports, a depreciated dollar, an increase in exports, and an uncertain effect on the international trade deficit. 
D)  will lead to a decrease in imports, an appreciated dollar, a decrease in exports, and an uncertain effect on the international trade deficit. 
A)  will lead to a decrease in imports, a depreciated dollar, an increase in exports, and a decrease in the international trade deficit. 
B)  will lead to an increase in imports, an appreciated dollar, a decrease in exports, and an increase in the international trade deficit. 
C)  will lead to an increase in imports, a depreciated dollar, an increase in exports, and an uncertain effect on the international trade deficit. 
D)  will lead to a decrease in imports, an appreciated dollar, a decrease in exports, and an uncertain effect on the international trade deficit.

Question 7

The national debt

Accepted Answer

A)  is the annual difference between government spending and tax collections. 
B)  the total amount of money that households and businesses owe to those from whom they have borrowed. 
C)  the total amount of money the current generation owes to preceding generations. 
D)  the total amount of money that the government owes those from whom it has borrowed. 
A)  is the annual difference between government spending and tax collections. 
B)  the total amount of money that households and businesses owe to those from whom they have borrowed. 
C)  the total amount of money the current generation owes to preceding generations. 
D)  the total amount of money that the government owes those from whom it has borrowed.

Question 8

A rising government debt

Accepted Answer

A)  tends to decrease capital formation. 
B)  tends to increase the economy's long-run balanced-growth path. 
C)  tends to increase the balanced-growth GDP per worker. 
D)  means that taxes in the future will be lower because of lower interest charges. 
A)  tends to decrease capital formation. 
B)  tends to increase the economy's long-run balanced-growth path. 
C)  tends to increase the balanced-growth GDP per worker. 
D)  means that taxes in the future will be lower because of lower interest charges.

Question 9

The real interest that government pays on its debt

Accepted Answer

A)  is equal to the nominal interest rate times the debt (i x 
D) . 
B)  is equal to the nominal interest rate times the cash deficit (i x dc). 
C)  is equal to the real interest rate times the cash deficit (r x dc). 
D)  is equal to the real interest rate times the debt (r x 
D) . 
A)  is equal to the nominal interest rate times the debt (i x 
D) . 
B)  is equal to the nominal interest rate times the cash deficit (i x dc). 
C)  is equal to the real interest rate times the cash deficit (r x dc). 
D)  is equal to the real interest rate times the debt (r x 
D) .

Question 10

The questions with which Chapter 14 is concerned include each of the following except

Accepted Answer

A)  from the standpoint of analyzing stabilization policy, why is it always best to balance the government's budget? 
B)  what is the typical pattern America's national debt follows over time? 
C)  how has recent experience in the past generation deviated from this traditional pattern of debt behavior? 
D)  what is the typical pattern America's national debt follows over time?. 
A)  from the standpoint of analyzing stabilization policy, why is it always best to balance the government's budget? 
B)  what is the typical pattern America's national debt follows over time? 
C)  how has recent experience in the past generation deviated from this traditional pattern of debt behavior? 
D)  what is the typical pattern America's national debt follows over time?.

Question 11

Lower full-employment deficits

Accepted Answer

A)  shift the IS curve to the right, raise real interest rates, and reduce consumption spending. 
B)  shift the IS curve to the right, raise real interest rates, and reduce investment spending. 
C)  shift the IS curve to the left, lower interest rates, and increase investment spending. 
D)  shift the IS curve to the left, lower interest rates, and increase consumption spending. 
A)  shift the IS curve to the right, raise real interest rates, and reduce consumption spending. 
B)  shift the IS curve to the right, raise real interest rates, and reduce investment spending. 
C)  shift the IS curve to the left, lower interest rates, and increase investment spending. 
D)  shift the IS curve to the left, lower interest rates, and increase consumption spending.

Question 12

The relationship between the government's debt and the government's deficit (or surplus) is

Accepted Answer

A)  the change in the debt for a year is equal to the deficit (or surplus) for that year. 
B)  the change in the deficit for a year is equal to the debt (or surplus) for that year. 
C)  the change in the surplus for a year is equal to the debt (or deficit) for that year. 
D)  the debt and deficit are the same. 
A)  the change in the debt for a year is equal to the deficit (or surplus) for that year. 
B)  the change in the deficit for a year is equal to the debt (or surplus) for that year. 
C)  the change in the surplus for a year is equal to the debt (or deficit) for that year. 
D)  the debt and deficit are the same.

Question 13

Higher full-employment deficits

Accepted Answer

A)  reduce total savings, raise real interest rates, and reduce consumption spending. 
B)  increase total savings, lower real interest rates, and increase consumption spending. 
C)  increase total savings, lower real interest rates, and increase investment spending. 
D)  reduce total savings, raise real interest rates, and decrease investment spending. 
A)  reduce total savings, raise real interest rates, and reduce consumption spending. 
B)  increase total savings, lower real interest rates, and increase consumption spending. 
C)  increase total savings, lower real interest rates, and increase investment spending. 
D)  reduce total savings, raise real interest rates, and decrease investment spending.

Question 14

The questions with which Chapter 14 is concerned include each of the following except

Accepted Answer

A)  from the standpoint of analyzing stabilization policy, what is the best measure of the government's budget balance? 
B)  from the standpoint of analyzing the effect of changes in the national debt on long-run growth, what is the best measure of the economy's trade balance? 
C)  what are the reasons that we should worry about a rising national debt? 
D)  what are the reasons that we shouldn't worry about a rising national debt? 
A)  from the standpoint of analyzing stabilization policy, what is the best measure of the government's budget balance? 
B)  from the standpoint of analyzing the effect of changes in the national debt on long-run growth, what is the best measure of the economy's trade balance? 
C)  what are the reasons that we should worry about a rising national debt? 
D)  what are the reasons that we shouldn't worry about a rising national debt?

Question 15

In an economy with a constant cash deficit d, a long-run inflation rate , and long-run real GDP growth rate n + g, the equilibrium debt-to-GDP ratio is

Accepted Answer

A)  (d/Y) / n + g + $\pi$ ). 
B)  (d/Y) /(n + g +  $\pi$). 
C)  (d/Y) /(n + g - $\pi$ ). 
D)  (d/Y) /(n + g -  $\pi$). 
A)  (d/Y) / n + g + $\pi$ ). 
B)  (d/Y) /(n + g +  $\pi$). 
C)  (d/Y) /(n + g - $\pi$ ). 
D)  (d/Y) /(n + g -  $\pi$).

Question 16

If the cash deficit-to-GDP ratio increases,

Accepted Answer

A)  the equilibrium debt-to-GDP ratio will decrease. 
B)  the equilibrium deficit-to-GDP ratio will decrease. 
C)  the equilibrium debt-to-GDP ratio will increase. 
D)  the equilibrium deficit-to-GDP ratio will increase. 
A)  the equilibrium debt-to-GDP ratio will decrease. 
B)  the equilibrium deficit-to-GDP ratio will decrease. 
C)  the equilibrium debt-to-GDP ratio will increase. 
D)  the equilibrium deficit-to-GDP ratio will increase.

Question 17

A decreasing government debt

Accepted Answer

A)  tends to decrease capital formation. 
B)  tends to decrease the economy's long-run balanced-growth path. 
C)  tends to increase the balanced-growth GDP per worker. 
D)  means that taxes in the future will be higher to pay higher interest charges. 
A)  tends to decrease capital formation. 
B)  tends to decrease the economy's long-run balanced-growth path. 
C)  tends to increase the balanced-growth GDP per worker. 
D)  means that taxes in the future will be higher to pay higher interest charges.

Question 18

Each of the following are further adjustments that need to be made to the reported cash budget level except

Accepted Answer

A)  an adjustment for inflation. 
B)  an adjustment for public investment. 
C)  an adjustment for public consumption. 
D)  an adjustment for future liabilities and generational accounting. 
A)  an adjustment for inflation. 
B)  an adjustment for public investment. 
C)  an adjustment for public consumption. 
D)  an adjustment for future liabilities and generational accounting.

Question 19

In a year when government spending is less than tax collections,

Accepted Answer

A)  the difference is the government's surplus. 
B)  the difference is the government's deficit. 
C)  the difference is the government's debt. 
D)  the difference is the private sector's deficit. 
A)  the difference is the government's surplus. 
B)  the difference is the government's deficit. 
C)  the difference is the government's debt. 
D)  the difference is the private sector's deficit.

Question 20

The United States debt-to-GDP ratio reached its highest level in history

Accepted Answer

A)  during the Civil War. 
B)  during the 1980s. 
C)  during World War II. 
D)  during the 1990s. 
A)  during the Civil War. 
B)  during the 1980s. 
C)  during World War II. 
D)  during the 1990s.

The right measure of fiscal policy is

In the short-run, the effect on real GDP of a government budget deficit produced by a tax cut will be neutralized if

Fiscal policy is sustainable if

Higher full-employment deficits

If the labor force growth rate increases,

A decrease in the government's budget deficit

The national debt

A rising government debt

The real interest that government pays on its debt

The questions with which Chapter 14 is concerned include each of the following except

Lower full-employment deficits

The relationship between the government's debt and the government's deficit (or surplus) is

Higher full-employment deficits

The questions with which Chapter 14 is concerned include each of the following except

In an economy with a constant cash deficit d, a long-run inflation rate , and long-run real GDP growth rate n + g, the equilibrium debt-to-GDP ratio is

If the cash deficit-to-GDP ratio increases,

A decreasing government debt

Each of the following are further adjustments that need to be made to the reported cash budget level except

In a year when government spending is less than tax collections,

The United States debt-to-GDP ratio reached its highest level in history

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Building Blocks of the Flexible-Price Model

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

Investment, Net Exports, and Interest Rates: The Is Curve

The Money Market and the LM Curve

The Phillips Curve, Expectations, and Monetary Policy

Stabilization Policy

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

The Future of Macroeconomics

Epilogue

Filters

Exam 14: Budget Balance, National Debt, and Investment

The right measure of fiscal policy is

In the short-run, the effect on real GDP of a government budget deficit produced by a tax cut will be neutralized if

Fiscal policy is sustainable if

Higher full-employment deficits

If the labor force growth rate increases,

A decrease in the government's budget deficit

The national debt

A rising government debt

The real interest that government pays on its debt

The questions with which Chapter 14 is concerned include each of the following except

Lower full-employment deficits

The relationship between the government's debt and the government's deficit (or surplus) is

Higher full-employment deficits

The questions with which Chapter 14 is concerned include each of the following except

In an economy with a constant cash deficit d, a long-run inflation rate , and long-run real GDP growth rate n + g, the equilibrium debt-to-GDP ratio is

If the cash deficit-to-GDP ratio increases,

A decreasing government debt

Each of the following are further adjustments that need to be made to the reported cash budget level except

In a year when government spending is less than tax collections,

The United States debt-to-GDP ratio reached its highest level in history

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Building Blocks of the Flexible-Price Model

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

Investment, Net Exports, and Interest Rates: The Is Curve

The Money Market and the LM Curve

The Phillips Curve, Expectations, and Monetary Policy

Stabilization Policy

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

The Future of Macroeconomics

Epilogue

Filters