Question 1

While the budget deficit represents a ________, the public debt represents a ________.

Accepted Answer

A) flow; flow 
B) flow; stock 
C) stock; stock 
D) stock; flow 
A) flow; flow 
B) flow; stock 
C) stock; stock 
D) stock; flow

Question 2

Historic data indicate that there is usually a ________ relationship between trade deficits and federal government budget deficits.

Accepted Answer

A) positive 
B) zero 
C) negative 
D) fluctuating 
A) positive 
B) zero 
C) negative 
D) fluctuating

Question 3

An increase in the public debt would most likely indicate that

Accepted Answer

A) the budget deficit has increased. 
B) the budget deficit has decreased. 
C) the trade deficit has decreased. 
D) national saving has increased. 
A) the budget deficit has increased. 
B) the budget deficit has decreased. 
C) the trade deficit has decreased. 
D) national saving has increased.

Question 4

In the long run, a higher government deficit does not affect equilibrium real Gross Domestic Product (GDP), so that continuous increases in the government deficit will

Accepted Answer

A) lead to greater tax revenues. 
B) reduce the price level. 
C) reduce spending on privately provided goods and services. 
D) increase the unemployment rate. 
A) lead to greater tax revenues. 
B) reduce the price level. 
C) reduce spending on privately provided goods and services. 
D) increase the unemployment rate.

Question 5

Suppose the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the long run?

Accepted Answer

A) a recessionary gap 
B) a reduction in real GDP 
C) an inflationary gap 
D) none of the above 
A) a recessionary gap 
B) a reduction in real GDP 
C) an inflationary gap 
D) none of the above

Question 6

Suppose the economy is initially experiencing a recessionary gap. A reduction in the size of the budget deficit will cause which of the following in the short run?

Accepted Answer

A) a reduction in the size of the recessionary gap and increase in real GDP. 
B) an increase in the size of the recessionary gap and decrease in real GDP. 
C) an increase in inflation and increase in aggregate supply. 
D) an inflationary gap. 
A) a reduction in the size of the recessionary gap and increase in real GDP. 
B) an increase in the size of the recessionary gap and decrease in real GDP. 
C) an increase in inflation and increase in aggregate supply. 
D) an inflationary gap.

Question 7

The long-run effect of increasing government budget deficits

Accepted Answer

A) is a redistribution of real GDP from privately provided goods to government provided goods. 
B) is no impact on equilibrium real GDP. 
C) is to increase of price level. 
D) all of the above. 
A) is a redistribution of real GDP from privately provided goods to government provided goods. 
B) is no impact on equilibrium real GDP. 
C) is to increase of price level. 
D) all of the above.

Question 8

Some economists believe that financing deficit spending by increasing taxes will lead to a lower level of national consumption and a higher level of national savings than deficit spending. The reason is

Accepted Answer

A) people believe that they can consume the government provided goods and have future generations pay the bill. 
B) that people do not realize that taxes have increased also. 
C) people will forgo private consumption now as society substitutes government goods for private goods. 
D) the interest rate on the debt will increase. 
A) people believe that they can consume the government provided goods and have future generations pay the bill. 
B) that people do not realize that taxes have increased also. 
C) people will forgo private consumption now as society substitutes government goods for private goods. 
D) the interest rate on the debt will increase.

Question 9

The difference between the gross public debt and the net public debt is

Accepted Answer

A) the sum of all previously accumulated government budget deficits and surpluses. 
B) the sum of all previously issued U.S. government securities that have been purchased by foreign residents. 
C) all private-sector borrowing from private sources. 
D) all government interagency borrowing. 
A) the sum of all previously accumulated government budget deficits and surpluses. 
B) the sum of all previously issued U.S. government securities that have been purchased by foreign residents. 
C) all private-sector borrowing from private sources. 
D) all government interagency borrowing.

Question 10

What is the short-run effect of increased deficit spending on an economy experiencing a recessionary gap?

Accepted Answer

A) Aggregate demand increases, and the gap closes. 
B) Aggregate supply increases, closing the gap. 
C) Aggregate demand decreases, and the gap widens. 
D) Aggregate demand will increase, creating an inflationary gap. 
A) Aggregate demand increases, and the gap closes. 
B) Aggregate supply increases, closing the gap. 
C) Aggregate demand decreases, and the gap widens. 
D) Aggregate demand will increase, creating an inflationary gap.

Question 11

What is the difference between the short run and the long run when there is full employment and the government engages in deficit spending?

Accepted Answer

A) Real GDP will increase in both the short run and the long run. 
B) Real GDP will increase in the long run but not the short run. 
C) Real GDP will increase in the short run but not the long run. 
D) Real GDP will not increase in either the long run or the short run. 
A) Real GDP will increase in both the short run and the long run. 
B) Real GDP will increase in the long run but not the short run. 
C) Real GDP will increase in the short run but not the long run. 
D) Real GDP will not increase in either the long run or the short run.

Question 12

Net public debt is equal to

Accepted Answer

A) the gross public debt minus current year tax revenue collection. 
B) the gross public debt minus taxes paid by foreign corporations on their profits made in the United States. 
C) the gross public debt plus all governmental interagency borrowing. 
D) the gross public debt minus all governmental interagency borrowing. 
A) the gross public debt minus current year tax revenue collection. 
B) the gross public debt minus taxes paid by foreign corporations on their profits made in the United States. 
C) the gross public debt plus all governmental interagency borrowing. 
D) the gross public debt minus all governmental interagency borrowing.

Question 13

As a possible approach to eliminating the government budget deficit, increasing taxes on the rich only would

Accepted Answer

A) lead to a significant increase in tax revenues. 
B) not lead to a significant increase in tax revenues. 
C) lead to a greater number of entitlements. 
D) lead to an increase in real GDP. 
A) lead to a significant increase in tax revenues. 
B) not lead to a significant increase in tax revenues. 
C) lead to a greater number of entitlements. 
D) lead to an increase in real GDP.

Question 14

According to the text, the net public debt to Gross Domestic Product (GDP)ratio is currently about

Accepted Answer

A) 10%. 
B) 25%. 
C) 60%. 
D) 120%. 
A) 10%. 
B) 25%. 
C) 60%. 
D) 120%.

Question 15

An entitlement is

Accepted Answer

A) government spending on things like military salaries. 
B) guaranteed benefits under some government programs. 
C) another word for a government budget surplus. 
D) the payments to the private sector in exchange for goods and services. 
A) government spending on things like military salaries. 
B) guaranteed benefits under some government programs. 
C) another word for a government budget surplus. 
D) the payments to the private sector in exchange for goods and services.

Question 16

If the government spends exactly what it receives in taxes during a given interval, then the result is

Accepted Answer

A) a balanced budget. 
B) the gross public debt. 
C) the net public debt. 
D) a government budget deficit. 
A) a balanced budget. 
B) the gross public debt. 
C) the net public debt. 
D) a government budget deficit.

Question 17

Why is it unlikely that tax increases will be the way to eliminate current U.S. federal budget deficits?

Accepted Answer

A) Increasing every worker's taxes by the same amount could eliminate the deficit, but it is likely this action would be viewed as too burdensome for workers with modest incomes. 
B) The revenues generated by increasing taxes on the rich would only pay for a small portion of the federal budget deficit in any recent year. 
C) Since World War II, on average when taxes were increased by a dollar, federal government spending increased by that much and more. 
D) All of the above. 
A) Increasing every worker's taxes by the same amount could eliminate the deficit, but it is likely this action would be viewed as too burdensome for workers with modest incomes. 
B) The revenues generated by increasing taxes on the rich would only pay for a small portion of the federal budget deficit in any recent year. 
C) Since World War II, on average when taxes were increased by a dollar, federal government spending increased by that much and more. 
D) All of the above.

Question 18

When government spending exceeds government revenues during a given period of time

Accepted Answer

A) a budget deficit exists. 
B) a budget surplus exists. 
C) the national debt must be decreasing. 
D) Congress is obliged to raise taxes. 
A) a budget deficit exists. 
B) a budget surplus exists. 
C) the national debt must be decreasing. 
D) Congress is obliged to raise taxes.

Question 19

Which of the following statements about the budget deficit is TRUE?

Accepted Answer

A) It is a stock variable. 
B) It is a flow variable. 
C) It is equal to the public debt. 
D) none of the above 
A) It is a stock variable. 
B) It is a flow variable. 
C) It is equal to the public debt. 
D) none of the above

Question 20

A government budget deficit occurs during a budget year when

Accepted Answer

A) tax revenues > government spending. B) tax revenues = government spending. C) tax revenues < government spending. D) tax revenues + government spending = personal consumption. A) tax revenues > government spending. B) tax revenues = government spending. C) tax revenues < government spending. D) tax revenues + government spending = personal consumption.

While the budget deficit represents a , the public debt represents a .

Historic data indicate that there is usually a ________ relationship between trade deficits and federal government budget deficits.

An increase in the public debt would most likely indicate that

In the long run, a higher government deficit does not affect equilibrium real Gross Domestic Product (GDP), so that continuous increases in the government deficit will

Suppose the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the long run?

Suppose the economy is initially experiencing a recessionary gap. A reduction in the size of the budget deficit will cause which of the following in the short run?

The long-run effect of increasing government budget deficits

Some economists believe that financing deficit spending by increasing taxes will lead to a lower level of national consumption and a higher level of national savings than deficit spending. The reason is

The difference between the gross public debt and the net public debt is

What is the short-run effect of increased deficit spending on an economy experiencing a recessionary gap?

What is the difference between the short run and the long run when there is full employment and the government engages in deficit spending?

Net public debt is equal to

As a possible approach to eliminating the government budget deficit, increasing taxes on the rich only would

According to the text, the net public debt to Gross Domestic Product (GDP)ratio is currently about

An entitlement is

If the government spends exactly what it receives in taxes during a given interval, then the result is

Why is it unlikely that tax increases will be the way to eliminate current U.S. federal budget deficits?

When government spending exceeds government revenues during a given period of time

Which of the following statements about the budget deficit is TRUE?

A government budget deficit occurs during a budget year when

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Exam 13: Deficit Spending and the Public Debt

While the budget deficit represents a ________, the public debt represents a ________.

Historic data indicate that there is usually a ________ relationship between trade deficits and federal government budget deficits.

An increase in the public debt would most likely indicate that

In the long run, a higher government deficit does not affect equilibrium real Gross Domestic Product (GDP), so that continuous increases in the government deficit will

Suppose the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the long run?

Suppose the economy is initially experiencing a recessionary gap. A reduction in the size of the budget deficit will cause which of the following in the short run?

The long-run effect of increasing government budget deficits

Some economists believe that financing deficit spending by increasing taxes will lead to a lower level of national consumption and a higher level of national savings than deficit spending. The reason is

The difference between the gross public debt and the net public debt is

What is the short-run effect of increased deficit spending on an economy experiencing a recessionary gap?

What is the difference between the short run and the long run when there is full employment and the government engages in deficit spending?

Net public debt is equal to

As a possible approach to eliminating the government budget deficit, increasing taxes on the rich only would

According to the text, the net public debt to Gross Domestic Product (GDP)ratio is currently about

An entitlement is

If the government spends exactly what it receives in taxes during a given interval, then the result is

Why is it unlikely that tax increases will be the way to eliminate current U.S. federal budget deficits?

When government spending exceeds government revenues during a given period of time

Which of the following statements about the budget deficit is TRUE?

A government budget deficit occurs during a budget year when

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

While the budget deficit represents a , the public debt represents a .