Question 1

The statement that "repaying our enormous national debt will ruin the nation" is

Accepted Answer

A) true, because taxes will have to go up by such large amounts that American citizens will have very little income to live on. 
B) true, because most of our national debt is owed to foreigners. 
C) false, because the government will take emergency measures to prevent national bankruptcy. 
D) false, because each time the principal on the debt comes due, the U.S.Treasury rolls it over by issuing more debt. 
A) true, because taxes will have to go up by such large amounts that American citizens will have very little income to live on. 
B) true, because most of our national debt is owed to foreigners. 
C) false, because the government will take emergency measures to prevent national bankruptcy. 
D) false, because each time the principal on the debt comes due, the U.S.Treasury rolls it over by issuing more debt. D

Question 2

Monetization of the deficit (or debt) means that

Accepted Answer

A) the government uses monetary policy to control the economy rather than fiscal policy. 
B) inflation accounting corrects for price increases. 
C) the Fed buys newly issued debt and increases the money supply. 
D) the amount of money in circulation is equal to the size of the debt. 
A) the government uses monetary policy to control the economy rather than fiscal policy. 
B) inflation accounting corrects for price increases. 
C) the Fed buys newly issued debt and increases the money supply. 
D) the amount of money in circulation is equal to the size of the debt. C

Question 3

What is the difference between the deficit and the debt?

Accepted Answer

The budget deficit is the difference over some time period, usually a year, between government receipts and outlays (expenditures plus transfers).When outlays exceed receipts, the budget is in deficit.The national debt is the accumulation of past deficits.The budget deficits in the 1980s and the early 1990s were often over $150 billion a year or more.The national debt at the end of 1998 was about $3.3 billion on a net basis.

Question 4

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 5

The blame for failing to address the budget deficits of the 1980s and early 1990s

Accepted Answer

A) is clearly the fault of the Republican administrations. 
B) is clearly the fault of the Democratic Congresses. 
C) is a political question rather than an economic question. 
D) is an economic question rather than a political question. 
A) is clearly the fault of the Republican administrations. 
B) is clearly the fault of the Democratic Congresses. 
C) is a political question rather than an economic question. 
D) is an economic question rather than a political question.

Question 6

A budget surplus is defined as the amount that the

Accepted Answer

A) government owes to lenders at any moment in time. 
B) government spends in any time period. 
C) government's expenditures exceed receipts in any time period. 
D) government's receipts exceed expenditures in any time period. 
A) government owes to lenders at any moment in time. 
B) government spends in any time period. 
C) government's expenditures exceed receipts in any time period. 
D) government's receipts exceed expenditures in any time period.

Question 7

Expansionary fiscal policy normally lowers interest rates.

Accepted Answer

A) True 
 B)False

Question 8

Differentiate between "off-budget" deficit and the "on-budget" deficit.

Accepted Answer

Social Security expenditures and the pay

Question 9

The fallacy in the strict crowding-out argument comes from supposing that

Accepted Answer

A) the Federal Reserve always accommodates the U.S.Treasury in its financing of the deficit. 
B) corporations always outbid small businesses for government contracts. 
C) the economy's flow of saving is fixed. 
D) investors will spend more when G increases. 
A) the Federal Reserve always accommodates the U.S.Treasury in its financing of the deficit. 
B) corporations always outbid small businesses for government contracts. 
C) the economy's flow of saving is fixed. 
D) investors will spend more when G increases.

Question 10

If the national debt is owed entirely to U.S.citizens,

Accepted Answer

A) paying off the debt will necessarily stimulate growth. 
B) future interest payments on the debt are not a burden to the nation as a whole. 
C) future economic growth will necessarily be slowed. 
D) the debt constitutes a burden to these citizens. 
A) paying off the debt will necessarily stimulate growth. 
B) future interest payments on the debt are not a burden to the nation as a whole. 
C) future economic growth will necessarily be slowed. 
D) the debt constitutes a burden to these citizens.

Question 11

The central bank is said to monetize the deficit when it

Accepted Answer

A) prints Federal Reserve notes to satisfy the increased demand for money. 
B) sells government bonds from its own portfolio of government securities. 
C) requires member banks to buy the bonds to finance the deficit. 
D) purchases the bonds that the government issues. 
A) prints Federal Reserve notes to satisfy the increased demand for money. 
B) sells government bonds from its own portfolio of government securities. 
C) requires member banks to buy the bonds to finance the deficit. 
D) purchases the bonds that the government issues.

Question 12

Figure 16-3
  
-Figure 16-3 shows the impact of deficit spending and the corresponding economic expansion on the demand curve for money.If the Federal Reserve does not want interest rates to rise, it will

Accepted Answer

A) shift the money supply curve to the right by monetizing the deficit. 
B) shift the money supply curve to the left by open market sales of government securities. 
C) maintain the current targets for both M1 and M2 money stocks. 
D) engage in contractionary monetary policy, such as increases in the discount rate. 
A) shift the money supply curve to the right by monetizing the deficit. 
B) shift the money supply curve to the left by open market sales of government securities. 
C) maintain the current targets for both M1 and M2 money stocks. 
D) engage in contractionary monetary policy, such as increases in the discount rate.

Question 13

If the Federal Reserve takes no countervailing actions, an expansionary fiscal policy will increase the deficit, increase GDP, increase prices, and drive up interest rates.

Accepted Answer

A) True 
 B)False

Question 14

The policy mix that the Clinton administration sought in early 1993 was a

Accepted Answer

A) smaller budget deficit and tighter monetary policy. 
B) smaller budget deficit and looser monetary policy. 
C) larger budget deficit and looser monetary policy. 
D) larger budget deficit and tighter monetary policy. 
A) smaller budget deficit and tighter monetary policy. 
B) smaller budget deficit and looser monetary policy. 
C) larger budget deficit and looser monetary policy. 
D) larger budget deficit and tighter monetary policy.

Question 15

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 16

The structural deficit is extremely sensitive to the performance of the economy.

Accepted Answer

A) True 
 B)False

Question 17

Deficit spending will not cause much inflation if the economy is operating near full employment.

Accepted Answer

A) True 
 B)False

Question 18

A deficit will burden future generations

Accepted Answer

A) because the obligation to pay it off must be faced sooner or later. 
B) if it produces higher interest rates when the economy is near full employment. 
C) because future generations will have to pay taxes to fund the interest payments to Americans who hold the debt. 
D) All of the above are correct. 
A) because the obligation to pay it off must be faced sooner or later. 
B) if it produces higher interest rates when the economy is near full employment. 
C) because future generations will have to pay taxes to fund the interest payments to Americans who hold the debt. 
D) All of the above are correct.

Question 19

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 20

One measure of "ability to pay," the national debt is the debt to

Accepted Answer

A) GDP ratio. 
B) tax ratio. 
C) spending ratio. 
D) investment ratio. 
A) GDP ratio. 
B) tax ratio. 
C) spending ratio. 
D) investment ratio.

Exam 33: Budget Deficits in the Short and Long Run

The statement that "repaying our enormous national debt will ruin the nation" is

Monetization of the deficit (or debt) means that

What is the difference between the deficit and the debt?

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

The blame for failing to address the budget deficits of the 1980s and early 1990s

A budget surplus is defined as the amount that the

Expansionary fiscal policy normally lowers interest rates.

Differentiate between "off-budget" deficit and the "on-budget" deficit.

The fallacy in the strict crowding-out argument comes from supposing that

If the national debt is owed entirely to U.S.citizens,

The central bank is said to monetize the deficit when it

Figure 16-3 -Figure 16-3 shows the impact of deficit spending and the corresponding economic expansion on the demand curve for money.If the Federal Reserve does not want interest rates to rise, it will

If the Federal Reserve takes no countervailing actions, an expansionary fiscal policy will increase the deficit, increase GDP, increase prices, and drive up interest rates.

The policy mix that the Clinton administration sought in early 1993 was a

A budget surplus exists when

The structural deficit is extremely sensitive to the performance of the economy.

Deficit spending will not cause much inflation if the economy is operating near full employment.

A deficit will burden future generations

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

One measure of "ability to pay," the national debt is the debt to

What Is Economics

The Economy: 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

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

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

He 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

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