Question 1

The main reason that the deficit grows in a recession is that

Accepted Answer

A) the government reacts quickly and adjusts taxes to compensate. 
B) monetary policy that targets interest rates causes the costs of borrowing to fall. 
C) the deficit causes the recession, and reducing the deficit cures the recession. 
D) many forms of taxes act as automatic stabilizers. 
A) the government reacts quickly and adjusts taxes to compensate. 
B) monetary policy that targets interest rates causes the costs of borrowing to fall. 
C) the deficit causes the recession, and reducing the deficit cures the recession. 
D) many forms of taxes act as automatic stabilizers.

Question 2

If the U.S.government decides to eliminate a budget surplus by reducing taxes, the most likely effect would be

Accepted Answer

A) falling prices. 
B) a reduction in the trade deficit. 
C) an increase in unemployment. 
D) upward pressure on prices. 
A) falling prices. 
B) a reduction in the trade deficit. 
C) an increase in unemployment. 
D) upward pressure on prices.

Question 3

Like the debt of many families, the national debt in 2014 was many times larger than the national income.

Accepted Answer

A) True 
 B)False

Question 4

The share of the net national debt owned by foreign individuals, businesses, and governments has steadily risen to 80%.

Accepted Answer

A) True 
 B)False

Question 5

Figure 16-3
  
-If budget deficits shift the money demand curve as is illustrated in Figure 16-3, which component of total expenditures will be affected the most?

Accepted Answer

A) consumption spending 
B) government spending 
C) private investment spending 
D) net exports 
A) consumption spending 
B) government spending 
C) private investment spending 
D) net exports

Question 6

Because of the American national debt, future Americans will be burdened by heavy interest payments which will necessitate higher taxes.

Accepted Answer

A) True 
 B)False

Question 7

The U.S.government need never default on its debt because

Accepted Answer

A) it can easily nationalize banks, who own all the debt, and then owe it to itself. 
B) it can raise the funds it needs to repay by taxation, and it can print money to repay. 
C) it owes the debt to itself, and it can always ignore a demand for repayment. 
D) it can simply reduce spending enough to generate funds to repay its debt. 
A) it can easily nationalize banks, who own all the debt, and then owe it to itself. 
B) it can raise the funds it needs to repay by taxation, and it can print money to repay. 
C) it owes the debt to itself, and it can always ignore a demand for repayment. 
D) it can simply reduce spending enough to generate funds to repay its debt.

Question 8

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 9

Crowding out can best be defined as:

Accepted Answer

A) private investment increases growth rates and decreases deficits. 
B) restrictive monetary policy raises interest rates and decreases investment. 
C) government deficits increase interest rates and decrease investment. 
D) consumption spending increases interest rates and decreases investment. 
A) private investment increases growth rates and decreases deficits. 
B) restrictive monetary policy raises interest rates and decreases investment. 
C) government deficits increase interest rates and decrease investment. 
D) consumption spending increases interest rates and decreases investment.

Question 10

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 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 11

Which of the following is true regarding the effect of deficits from 1980-2005 in the U.S.?

Accepted Answer

A) They did not lead to substantial inflation because the Fed did not monetize the deficits. 
B) They did not lead to substantial inflation because the Fed did monetize the deficits. 
C) They led to substantial inflation because the Fed did not monetize the deficits. 
D) They led to substantial inflation because the Fed did monetize the deficits. 
A) They did not lead to substantial inflation because the Fed did not monetize the deficits. 
B) They did not lead to substantial inflation because the Fed did monetize the deficits. 
C) They led to substantial inflation because the Fed did not monetize the deficits. 
D) They led to substantial inflation because the Fed did monetize the deficits.

Question 12

If a budget deficit increases interest rates, it is possible that investment will

Accepted Answer

A) fall, leading to a larger capital stock. 
B) fall, so that there is a smaller capital stock. 
C) rise, because investment is directly related to interest rates. 
D) rise, because investment is more attractive when interest rates are higher. 
A) fall, leading to a larger capital stock. 
B) fall, so that there is a smaller capital stock. 
C) rise, because investment is directly related to interest rates. 
D) rise, because investment is more attractive when interest rates are higher.

Question 13

Very recently, the debt-to-GDP ratio has been:​

Accepted Answer

A) ​higher than usual. 
B) ​lower than usual. 
C) ​stabilized. 
D) ​volatile. 
A) ​higher than usual. 
B) ​lower than usual. 
C) ​stabilized. 
D) ​volatile.

Question 14

Suppose that the economy is currently at full employment.All other things being equal, if central bank implements contractionary policy, then the appropriate fiscal policy is to

Accepted Answer

A) increase taxes. 
B) reduce government spending. 
C) balance the budget. 
D) increase a budget deficit. 
A) increase taxes. 
B) reduce government spending. 
C) balance the budget. 
D) increase a budget deficit.

Question 15

At levels of GDP above full employment, the federal budget would usually be in a deficit position.

Accepted Answer

A) True 
 B)False

Question 16

At the end of 2014, the net national debt per person in the United States was approximately

Accepted Answer

A) $14 trillion. 
B) $142 billion. 
C) $56,000. 
D) $86,000. 
A) $14 trillion. 
B) $142 billion. 
C) $56,000. 
D) $86,000.

Question 17

A serious burden of a budget deficit and an increase in the national debt comes on the supply side because large budget deficits

Accepted Answer

A) discourage consumption and therefore lead to production cutbacks. 
B) lead to lower interest rates and therefore to excessive optimism by consumers and businesspeople. 
C) discourage investment and therefore may reduce the growth of the nation's capital stock. 
D) discourage foreign investment and therefore limit employment opportunities. 
A) discourage consumption and therefore lead to production cutbacks. 
B) lead to lower interest rates and therefore to excessive optimism by consumers and businesspeople. 
C) discourage investment and therefore may reduce the growth of the nation's capital stock. 
D) discourage foreign investment and therefore limit employment opportunities.

Question 18

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 19

If the government ran a major deficit, and there was no noticeable effect on the level of GDP, this could be taken as evidence of

Accepted Answer

A) crowding-in. 
B) structural deficit. 
C) crowding-out. 
D) monetary policy ineffectiveness. 
A) crowding-in. 
B) structural deficit. 
C) crowding-out. 
D) monetary policy ineffectiveness.

Question 20

A mathematical formula for the deficit would be

Accepted Answer

A) C + I + G − Transfers + Taxes 
B) C + I + G + Transfers − Taxes 
C) I + G + Transfers − Taxes 
D) G + Transfers − Taxes 
A) C + I + G − Transfers + Taxes 
B) C + I + G + Transfers − Taxes 
C) I + G + Transfers − Taxes 
D) G + Transfers − Taxes

Exam 33: Budget Deficits in the Short and Long Run

The main reason that the deficit grows in a recession is that

If the U.S.government decides to eliminate a budget surplus by reducing taxes, the most likely effect would be

Like the debt of many families, the national debt in 2014 was many times larger than the national income.

The share of the net national debt owned by foreign individuals, businesses, and governments has steadily risen to 80%.

Figure 16-3 -If budget deficits shift the money demand curve as is illustrated in Figure 16-3, which component of total expenditures will be affected the most?

Because of the American national debt, future Americans will be burdened by heavy interest payments which will necessitate higher taxes.

The U.S.government need never default on its debt because

What happens typically to a budget deficit during a recession?

Crowding out can best be defined as:

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 is the actual deficit the greatest?

Which of the following is true regarding the effect of deficits from 1980-2005 in the U.S.?

If a budget deficit increases interest rates, it is possible that investment will

Very recently, the debt-to-GDP ratio has been:​

Suppose that the economy is currently at full employment.All other things being equal, if central bank implements contractionary policy, then the appropriate fiscal policy is to

At levels of GDP above full employment, the federal budget would usually be in a deficit position.

At the end of 2014, the net national debt per person in the United States was approximately

A serious burden of a budget deficit and an increase in the national debt comes on the supply side because large budget deficits

The national debt is the

If the government ran a major deficit, and there was no noticeable effect on the level of GDP, this could be taken as evidence of

A mathematical formula for the deficit would be

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

Filters

Very recently, the debt-to-GDP ratio has been: