Question 1

How does the federal government finance a budget deficit?

Accepted Answer

A)  It redeems its IOUs. 
B)  It purchases U.S. Treasury bonds. 
C)  It cuts spending on entitlement programs. 
D)  It borrows funds by selling Treasury bonds. 
A)  It redeems its IOUs. 
B)  It purchases U.S. Treasury bonds. 
C)  It cuts spending on entitlement programs. 
D)  It borrows funds by selling Treasury bonds.

Question 2

Since 2001, the U.S. government budget deficit

Accepted Answer

A)  has been approximately equal to 10% of U.S. GDP. 
B)  as a percentage of U.S. GDP has increased steadily each year. 
C)  as a percentage of U.S. GDP has decreased steadily each year. 
D)  none of the above. 
A)  has been approximately equal to 10% of U.S. GDP. 
B)  as a percentage of U.S. GDP has increased steadily each year. 
C)  as a percentage of U.S. GDP has decreased steadily each year. 
D)  none of the above.

Question 3

If the government's spending exactly equals its revenues during a budget year, that government is

Accepted Answer

A)  running a budget deficit. 
B)  experiencing a budget surplus. 
C)  balancing its budget. 
D)  paying off its public debt. 
A)  running a budget deficit. 
B)  experiencing a budget surplus. 
C)  balancing its budget. 
D)  paying off its public debt.

Question 4

Which of the following is true when a budget deficit exists?

Accepted Answer

A)  Government expenditures exceed tax revenues. 
B)  Tax revenues exceed government expenditures. 
C)  A trade surplus exists. 
D)  Dissaving exists. 
A)  Government expenditures exceed tax revenues. 
B)  Tax revenues exceed government expenditures. 
C)  A trade surplus exists. 
D)  Dissaving exists.

Question 5

When government expenditures are greater than tax revenues

Accepted Answer

A)  there will be budget deficit. 
B)  there will be budget surplus. 
C)  automatic stabilizers do not kick in. 
D)  the public debt will be reduced. 
A)  there will be budget deficit. 
B)  there will be budget surplus. 
C)  automatic stabilizers do not kick in. 
D)  the public debt will be reduced.

Question 6

According to the text, approximately what percentage of U.S. net public debt is held by foreign residents?

Accepted Answer

A)  20% 
B)  50% 
C)  800% 
D)  90% 
A)  20% 
B)  50% 
C)  800% 
D)  90%

Question 7

The gross public debt is the

Accepted Answer

A)  amount of U.S. paper currency and coins in circulation. 
B)  difference between current government expenditures and tax revenues. 
C)  ratio of past deficits to past surpluses. 
D)  total of all accumulated deficits and surpluses. 
A)  amount of U.S. paper currency and coins in circulation. 
B)  difference between current government expenditures and tax revenues. 
C)  ratio of past deficits to past surpluses. 
D)  total of all accumulated deficits and surpluses.

Question 8

In the long run, what effect does a government's deficit spending have on equilibrium real Gross Domestic Product (GDP)?

Accepted Answer

A)  The government's deficit spending will increase equilibrium real Gross Domestic Product (GDP). 
B)  Deficit spending will decrease the nation's equilibrium real Gross Domestic Product (GDP). 
C)  Higher government deficits will not raise equilibrium Gross Domestic Product (GDP) above the full-employment level. 
D)  Equilibrium real Gross Domestic Product (GDP) will increase beyond the full-employment level and there will also be an inflationary effect. 
A)  The government's deficit spending will increase equilibrium real Gross Domestic Product (GDP). 
B)  Deficit spending will decrease the nation's equilibrium real Gross Domestic Product (GDP). 
C)  Higher government deficits will not raise equilibrium Gross Domestic Product (GDP) above the full-employment level. 
D)  Equilibrium real Gross Domestic Product (GDP) will increase beyond the full-employment level and there will also be an inflationary effect.

Question 9

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

Accepted Answer

A)  gross public debt includes entitlements while the net public debt does not. 
B)  gross public debt is based on budget deficit while the net public debt is not based on budget deficits. 
C)  gross public debt includes government interagency borrowing while the net public debt does not. 
D)  the gross public debt is expressed as a percentage of GDP while the net public debt is not. 
A)  gross public debt includes entitlements while the net public debt does not. 
B)  gross public debt is based on budget deficit while the net public debt is not based on budget deficits. 
C)  gross public debt includes government interagency borrowing while the net public debt does not. 
D)  the gross public debt is expressed as a percentage of GDP while the net public debt is not.

Question 10

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 11

By approximately how much would the federal government have to raise each worker's annual taxes to eliminate the current federal budget deficit?

Accepted Answer

A)  Between $50 and $100 per year 
B)  Between $500 and $1,000 per year 
C)  Between $1,500 and $2,500 per year 
D)  Between $5,000 and $7,000 per year 
A)  Between $50 and $100 per year 
B)  Between $500 and $1,000 per year 
C)  Between $1,500 and $2,500 per year 
D)  Between $5,000 and $7,000 per year

Question 12

Which of the following statements is correct?

Accepted Answer

A)  Since the mid-1940s, expenditures on national defense have increased considerably as a percentage of total federal government spending. 
B)  Since the mid-1940s, expenditures on income security and health programs have increased considerably as a percentage of total federal government spending. 
C)  Taken together, expenditures on national defense and on income security and health programs now account for less than half of all federal government spending. 
D)  Expenditures on national defense now account for more than twice as much federal government spending as expenditures on income security and health programs. 
A)  Since the mid-1940s, expenditures on national defense have increased considerably as a percentage of total federal government spending. 
B)  Since the mid-1940s, expenditures on income security and health programs have increased considerably as a percentage of total federal government spending. 
C)  Taken together, expenditures on national defense and on income security and health programs now account for less than half of all federal government spending. 
D)  Expenditures on national defense now account for more than twice as much federal government spending as expenditures on income security and health programs.

Question 13

In the long run, what effect does a government's deficit spending have on equilibrium real Gross Domestic Product (GDP)?

Accepted Answer

A)  Government deficit spending will increase equilibrium real Gross Domestic Product (GDP). 
B)  Deficit spending will decrease the nation's equilibrium real Gross Domestic Product (GDP). 
C)  Higher government deficits will not raise equilibrium Gross Domestic Product (GDP) above the full-employment level. 
D)  Higher government deficits will raise equilibrium Gross Domestic Product (GDP) above the full-employment level and also have an inflationary effect. 
A)  Government deficit spending will increase equilibrium real Gross Domestic Product (GDP). 
B)  Deficit spending will decrease the nation's equilibrium real Gross Domestic Product (GDP). 
C)  Higher government deficits will not raise equilibrium Gross Domestic Product (GDP) above the full-employment level. 
D)  Higher government deficits will raise equilibrium Gross Domestic Product (GDP) above the full-employment level and also have an inflationary effect.

Question 14

Gross public debt minus all government interagency borrowing is

Accepted Answer

A)  government budget deficit. 
B)  net public debt. 
C)  U.S. Treasury bonds. 
D)  an entitlement. 
A)  government budget deficit. 
B)  net public debt. 
C)  U.S. Treasury bonds. 
D)  an entitlement.

Question 15

Ceteris paribus, deficit spending results in higher interest rates, which can

Accepted Answer

A)  accelerate growth in investment spending. 
B)  ultimately have a positive impact on productivity gains and society's standard of living. 
C)  increase the wealth of future generations. 
D)  crowd out private investment. 
A)  accelerate growth in investment spending. 
B)  ultimately have a positive impact on productivity gains and society's standard of living. 
C)  increase the wealth of future generations. 
D)  crowd out private investment.

Question 16

If the government spends more than 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

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 18

Which of the following will NOT cause the public debt to change?

Accepted Answer

A)  Collection by the government of $200 billion more in taxes than it spends 
B)  Government budget deficit 
C)  Government budget surplus 
D)  Balanced budget 
A)  Collection by the government of $200 billion more in taxes than it spends 
B)  Government budget deficit 
C)  Government budget surplus 
D)  Balanced budget

Question 19

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 20

Which of the following statements is false?

Accepted Answer

A)  The federal budget deficit in 2004 was about 4 percent of the GDP. 
B)  A budget deficit of $25 billion in a given year increases the public debt by $25 billion. 
C)  The public debt of $25 billion is the accumulated debt of all U.S. individuals, firms, and institutions. 
D)  During the past five years, the U.S. public debt has been increasing. 
A)  The federal budget deficit in 2004 was about 4 percent of the GDP. 
B)  A budget deficit of $25 billion in a given year increases the public debt by $25 billion. 
C)  The public debt of $25 billion is the accumulated debt of all U.S. individuals, firms, and institutions. 
D)  During the past five years, the U.S. public debt has been increasing.

Exam 14: Deficit Spending and the Public Debt

How does the federal government finance a budget deficit?

Since 2001, the U.S. government budget deficit

If the government's spending exactly equals its revenues during a budget year, that government is

Which of the following is true when a budget deficit exists?

When government expenditures are greater than tax revenues

According to the text, approximately what percentage of U.S. net public debt is held by foreign residents?

The gross public debt is the

In the long run, what effect does a government's deficit spending have on equilibrium real Gross Domestic Product (GDP)?

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

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

By approximately how much would the federal government have to raise each worker's annual taxes to eliminate the current federal budget deficit?

Which of the following statements is correct?

In the long run, what effect does a government's deficit spending have on equilibrium real Gross Domestic Product (GDP)?

Gross public debt minus all government interagency borrowing is

Ceteris paribus, deficit spending results in higher interest rates, which can

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

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

Which of the following will NOT cause the public debt to change?

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

Which of the following statements is false?

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

Measuring the Economys Performance

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

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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