Question 1

Until 1983, almost all U.S.national debt stemmed from financing wars or from the loss tax revenues that accompany recession.

Accepted Answer

A) True 
 B)False

Question 2

When budget deficits take place in a high-employment economy, the effect is an increase in capital stock.

Accepted Answer

A) True 
 B)False

Question 3

Contractionary fiscal policies used to reduce the deficit in the 1990s did not hurt the economy because fiscal and monetary policies were well coordinated at that time.

Accepted Answer

A) True 
 B)False

Question 4

A chart of the ratio of national debt to GDP from 1915 to 2014 would show

Accepted Answer

A) significant increases from 1945 to 1975. 
B) significant increases during World Wars I and II. 
C) a larger value in 1975 compared to 1945. 
D) significant increases from 1995 to 2003. 
A) significant increases from 1945 to 1975. 
B) significant increases during World Wars I and II. 
C) a larger value in 1975 compared to 1945. 
D) significant increases from 1995 to 2003.

Question 5

Until about 1983, almost all of the U.S.national debt stemmed from

Accepted Answer

A) financing wars. 
B) bank failures. 
C) development assistance programs. 
D) tax cuts. 
A) financing wars. 
B) bank failures. 
C) development assistance programs. 
D) tax cuts.

Question 6

Economic principles suggest that we should focus on balancing the budget rather than balancing aggregate supply and aggregate demand.

Accepted Answer

A) True 
 B)False

Question 7

A constitutional amendment requiring an annually balanced budget would help stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 8

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 9

What does it mean to "monetize the deficit"?
 Why is it important in discussions of fiscal policy?
 Use an appropriate diagram to illustrate your answer.

Accepted Answer

If the Fed wishes to keep interest rates

Question 10

The United States need never pay off the national debt; it can simply refinance the debt when it comes due.The flaw in thinking that the government must pay it off is based on the fallacy of

Accepted Answer

A) benefit-cost ratio. 
B) post hoc, ergo propter hoc. 
C) composition. 
D) a priori expectations. 
A) benefit-cost ratio. 
B) post hoc, ergo propter hoc. 
C) composition. 
D) a priori expectations.

Question 11

In 2010, the net national debt was about $9 trillion or approximately $29,000 per person.

Accepted Answer

A) True 
 B)False

Question 12

If the economy is in a recessionary gap, and the government attempts to balance the budget, the effect will be to

Accepted Answer

A) counteract the recession. 
B) worsen and prolong the recession. 
C) end the recession sooner. 
D) increase the level of real GDP. 
A) counteract the recession. 
B) worsen and prolong the recession. 
C) end the recession sooner. 
D) increase the level of real GDP.

Question 13

The structural deficit or surplus

Accepted Answer

A) shows the government where to make cuts in expenditures to follow the balanced budget requirement. 
B) reveals the complicated structure underlying government spending and tax policy. 
C) is the hypothetical deficit or surplus under current fiscal policies if the economy were operating near full employment. 
D) includes all government budgets-federal, state, and local. 
A) shows the government where to make cuts in expenditures to follow the balanced budget requirement. 
B) reveals the complicated structure underlying government spending and tax policy. 
C) is the hypothetical deficit or surplus under current fiscal policies if the economy were operating near full employment. 
D) includes all government budgets-federal, state, and local.

Question 14

Because the personal income tax is an automatic stabilizer,

Accepted Answer

A) inflationary gaps are impossible. 
B) the budget deficit grows during a recession. 
C) the deficit needed to cure a recessionary gap increases. 
D) the structural deficit grows during a recession. 
E) All of the above are correct. 
A) inflationary gaps are impossible. 
B) the budget deficit grows during a recession. 
C) the deficit needed to cure a recessionary gap increases. 
D) the structural deficit grows during a recession. 
E) All of the above are correct.

Question 15

Figure 16-1
  
-In Figure 16-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.At which level of income does the official budget produce a surplus?

Accepted Answer

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

Question 16

Although a balanced budget may be appropriate under one monetary policy, a deficit or surplus may be appropriate under a different monetary policy.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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 19

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.

Question 20

The argument that the national debt imposes a burden on future generations becomes more compelling as

Accepted Answer

A) the percentage of the national debt held by foreigners rises. 
B) tax rates rise. 
C) interest rates fall. 
D) debt service payments (interest) rise. 
A) the percentage of the national debt held by foreigners rises. 
B) tax rates rise. 
C) interest rates fall. 
D) debt service payments (interest) rise.

Exam 33: Budget Deficits in the Short and Long Run

Until 1983, almost all U.S.national debt stemmed from financing wars or from the loss tax revenues that accompany recession.

When budget deficits take place in a high-employment economy, the effect is an increase in capital stock.

Contractionary fiscal policies used to reduce the deficit in the 1990s did not hurt the economy because fiscal and monetary policies were well coordinated at that time.

A chart of the ratio of national debt to GDP from 1915 to 2014 would show

Until about 1983, almost all of the U.S.national debt stemmed from

Economic principles suggest that we should focus on balancing the budget rather than balancing aggregate supply and aggregate demand.

A constitutional amendment requiring an annually balanced budget would help stabilize the economy.

A budget deficit is best defined as the

What does it mean to "monetize the deficit"? Why is it important in discussions of fiscal policy? Use an appropriate diagram to illustrate your answer.

The United States need never pay off the national debt; it can simply refinance the debt when it comes due.The flaw in thinking that the government must pay it off is based on the fallacy of

In 2010, the net national debt was about $9 trillion or approximately $29,000 per person.

If the economy is in a recessionary gap, and the government attempts to balance the budget, the effect will be to

The structural deficit or surplus

Because the personal income tax is an automatic stabilizer,

Figure 16-1 -In Figure 16-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.At which level of income does the official budget produce a surplus?

Although a balanced budget may be appropriate under one monetary policy, a deficit or surplus may be appropriate under a different monetary policy.

Most economists agree that the focus of fiscal policy is to

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

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

The argument that the national debt imposes a burden on future generations becomes more compelling as

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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