Question 1

Other things being equal, during a period when the federal government issues more Treasury securities to borrow funds,

Accepted Answer

A)  the flow of government expenditures during that period must exceed the flow of tax revenues. 
B)  the flow of government expenditures during that period must exceed the stock of tax collections. 
C)  the stock of government deficit spending during that period must exceed the flow of tax revenues. 
D)  the stock of government deficit spending during that period must exceed the stock of tax collections. 
A)  the flow of government expenditures during that period must exceed the flow of tax revenues. 
B)  the flow of government expenditures during that period must exceed the stock of tax collections. 
C)  the stock of government deficit spending during that period must exceed the flow of tax revenues. 
D)  the stock of government deficit spending during that period must exceed the stock of tax collections.

Question 2

Borrowing to finance the increases in government expenditures

Accepted Answer

A)  reduces current private investment expenditures. 
B)  increases interest rates. 
C)  reduces growth in the nation's private capital stock. 
D)  all of the above 
A)  reduces current private investment expenditures. 
B)  increases interest rates. 
C)  reduces growth in the nation's private capital stock. 
D)  all of the above

Question 3

When analyzing the effects of the government budget deficit,

Accepted Answer

A)  no distinction must be made between an economy where full employment exists and one where substantial unemployment exists. 
B)  it is important to examine the effects of the reported capital budget and the reported operating budget separately. 
C)  there should be a comparison of the effect of the deficit to the effects of higher taxes needed to eliminate it. 
D)  the baseline budget should be used since it is the most accurate. 
A)  no distinction must be made between an economy where full employment exists and one where substantial unemployment exists. 
B)  it is important to examine the effects of the reported capital budget and the reported operating budget separately. 
C)  there should be a comparison of the effect of the deficit to the effects of higher taxes needed to eliminate it. 
D)  the baseline budget should be used since it is the most accurate.

Question 4

Suppose the economy is initially operating at full employment. A fiscal policy action that results in an increase in the size of the budget deficit will cause which of the following in the long run?

Accepted Answer

A)  an increase in real GDP. 
B)  have no effect on both the level and composition of real GDP. 
C)  a reduction in the price level. 
D)  change the composition of real GDP. 
A)  an increase in real GDP. 
B)  have no effect on both the level and composition of real GDP. 
C)  a reduction in the price level. 
D)  change the composition of real GDP.

Question 5

What is true about government budget deficits and surpluses since 1940?

Accepted Answer

A)  Balanced budgets have been more common than government budget deficits or government budget surpluses. 
B)  There have been more government budget surpluses than government budget deficits. 
C)  There have been more government budget deficits than government budget surpluses. 
D)  The number of government budget deficits is about the same as the number of government budget surpluses. 
A)  Balanced budgets have been more common than government budget deficits or government budget surpluses. 
B)  There have been more government budget surpluses than government budget deficits. 
C)  There have been more government budget deficits than government budget surpluses. 
D)  The number of government budget deficits is about the same as the number of government budget surpluses.

Question 6

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 7

How does a government budget deficit occur?

Accepted Answer

A)  A government's tax revenues exceed its spending. 
B)  A government's spending exceeds its tax revenues. 
C)  If a nation carries a public debt, it must be running a deficit every year. 
D)  A nation earns more on exports than it spends on imports. 
A)  A government's tax revenues exceed its spending. 
B)  A government's spending exceeds its tax revenues. 
C)  If a nation carries a public debt, it must be running a deficit every year. 
D)  A nation earns more on exports than it spends on imports.

Question 8

Guaranteed benefits under government programs such as Social Security or Medicare are called

Accepted Answer

A)  discretionary spending. 
B)  controllable expenditures. 
C)  entitlements. 
D)  automatic stabilizers. 
A)  discretionary spending. 
B)  controllable expenditures. 
C)  entitlements. 
D)  automatic stabilizers.

Question 9

If the government borrows to purchase goods and services, today's consumption of government goods and services will be paid for by

Accepted Answer

A)  today's taxpayers. 
B)  government employees. 
C)  future taxpayers. 
D)  today's taxpayers and tomorrow's taxpayers in even shares. 
A)  today's taxpayers. 
B)  government employees. 
C)  future taxpayers. 
D)  today's taxpayers and tomorrow's taxpayers in even shares.

Question 10

The share of net public debt owed to foreign residents today is close to

Accepted Answer

A)  100 percent. 
B)  80 percent. 
C)  50 percent. 
D)  10 percent. 
A)  100 percent. 
B)  80 percent. 
C)  50 percent. 
D)  10 percent.

Question 11

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

Accepted Answer

A)  net public debt includes interagency borrowing while the gross domestic product debt does not. 
B)  net public debt is expressed in real terms while gross public debt is expressed in nominal terms. 
C)  gross public debt includes interagency borrowing while net public debt does not. 
D)  gross public debt is held by individuals while net public debt is held by the government. 
A)  net public debt includes interagency borrowing while the gross domestic product debt does not. 
B)  net public debt is expressed in real terms while gross public debt is expressed in nominal terms. 
C)  gross public debt includes interagency borrowing while net public debt does not. 
D)  gross public debt is held by individuals while net public debt is held by the government.

Question 12

In the long run, higher government budget deficits will

Accepted Answer

A)  lead to a redistribution of real GDP from privately produced goods and services to government produced goods and services. 
B)  lead to a redistribution of real GDP from government produced goods and services to privately produced goods and services. 
C)  cause the price level to go down on government goods but not on private goods. 
D)  lead to a reduction in the amount of goods and services produced by the government and private sector. 
A)  lead to a redistribution of real GDP from privately produced goods and services to government produced goods and services. 
B)  lead to a redistribution of real GDP from government produced goods and services to privately produced goods and services. 
C)  cause the price level to go down on government goods but not on private goods. 
D)  lead to a reduction in the amount of goods and services produced by the government and private sector.

Question 13

Which of the following has NOT been proposed as a possible economic solution to reducing the government deficit?

Accepted Answer

A)  Reducing expenditures 
B)  Increasing taxes for the rich 
C)  Increasing the number of entitlements 
D)  Increasing taxes for everyone 
A)  Reducing expenditures 
B)  Increasing taxes for the rich 
C)  Increasing the number of entitlements 
D)  Increasing taxes for everyone

Question 14

The fastest growing component of the annual federal budgets since 2000 is

Accepted Answer

A)  the education budget. 
B)  entitlement payments. 
C)  funding for health research. 
D)  funding for NASA. 
A)  the education budget. 
B)  entitlement payments. 
C)  funding for health research. 
D)  funding for NASA.

Question 15

When government spending exceeds tax revenues during a specific time period, this is known as a

Accepted Answer

A)  government budget deficit. 
B)  government budget surplus. 
C)  balanced budget. 
D)  public debt. 
A)  government budget deficit. 
B)  government budget surplus. 
C)  balanced budget. 
D)  public debt.

Question 16

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 17

Which of the following is the best measure of the total amount that the federal government owes to private owners of U.S. Treasury securities?

Accepted Answer

A)  Government interagency borrowing 
B)  The government budget deficit 
C)  The gross public debt 
D)  The net public debt 
A)  Government interagency borrowing 
B)  The government budget deficit 
C)  The gross public debt 
D)  The net public debt

Question 18

If the net public debt remains unchanged during a given period, but the gross public debt increases, then which of the following statements must be correct?

Accepted Answer

A)  Government interagency borrowing must have increased during the period. 
B)  Government interagency borrowing must have decreased during the period. 
C)  Foreign ownership of U.S. Treasury securities must have risen during the period. 
D)  Foreign ownership of U.S. Treasury securities must have fallen during the period. 
A)  Government interagency borrowing must have increased during the period. 
B)  Government interagency borrowing must have decreased during the period. 
C)  Foreign ownership of U.S. Treasury securities must have risen during the period. 
D)  Foreign ownership of U.S. Treasury securities must have fallen during the period.

Question 19

Which of the following is NOT an example of a flow variable?

Accepted Answer

A)  planned investment 
B)  capital stock 
C)  The federal deficit 
D)  inventory investment 
A)  planned investment 
B)  capital stock 
C)  The federal deficit 
D)  inventory investment

Question 20

Which of the following statements has usually held true about the relationship between the trade deficits and government budget deficits?

Accepted Answer

A)  There is no relationship between trade deficits and budget deficits. 
B)  There is a positive relationship between trade deficits and budget deficits. 
C)  There is a negative relationship between trade deficits and budget deficits. 
D)  A relationship exists only when there is a balanced budget. 
A)  There is no relationship between trade deficits and budget deficits. 
B)  There is a positive relationship between trade deficits and budget deficits. 
C)  There is a negative relationship between trade deficits and budget deficits. 
D)  A relationship exists only when there is a balanced budget.

Exam 14: Deficit Spending and the Public Debt

Other things being equal, during a period when the federal government issues more Treasury securities to borrow funds,

Borrowing to finance the increases in government expenditures

When analyzing the effects of the government budget deficit,

Suppose the economy is initially operating at full employment. A fiscal policy action that results in an increase in the size of the budget deficit will cause which of the following in the long run?

What is true about government budget deficits and surpluses since 1940?

An entitlement is

How does a government budget deficit occur?

Guaranteed benefits under government programs such as Social Security or Medicare are called

If the government borrows to purchase goods and services, today's consumption of government goods and services will be paid for by

The share of net public debt owed to foreign residents today is close to

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

In the long run, higher government budget deficits will

Which of the following has NOT been proposed as a possible economic solution to reducing the government deficit?

The fastest growing component of the annual federal budgets since 2000 is

When government spending exceeds tax revenues during a specific time period, this is known as a

Net public debt is equal to

Which of the following is the best measure of the total amount that the federal government owes to private owners of U.S. Treasury securities?

If the net public debt remains unchanged during a given period, but the gross public debt increases, then which of the following statements must be correct?

Which of the following is NOT an example of a flow variable?

Which of the following statements has usually held true about the relationship between the trade deficits and government budget deficits?

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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