Question 1

The public debt is

Accepted Answer

A)  an excess of government spending over government revenues during a given time period. 
B)  a situation in which the government's spending is exactly equal to the total taxes and other revenues it collects during a given time period. 
C)  the total value of all outstanding federal government securities. 
D)  all federal government debt irrespective of who owns it. 
A)  an excess of government spending over government revenues during a given time period. 
B)  a situation in which the government's spending is exactly equal to the total taxes and other revenues it collects during a given time period. 
C)  the total value of all outstanding federal government securities. 
D)  all federal government debt irrespective of who owns it.

Question 2

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 3

One of the long-run effects of higher government budget deficits is

Accepted Answer

A)  a redistribution of real Gross Domestic Product (GDP) away from government-provided goods and toward more privately provided goods. 
B)  an increase in the government's share of the nation's economic activity. 
C)  growth in the economy's private sector at the same time the government sector shrinks. 
D)  a fall in the equilibrium price level. 
A)  a redistribution of real Gross Domestic Product (GDP) away from government-provided goods and toward more privately provided goods. 
B)  an increase in the government's share of the nation's economic activity. 
C)  growth in the economy's private sector at the same time the government sector shrinks. 
D)  a fall in the equilibrium price level.

Question 4

If no foreign residents owned any of the U.S. public debt, then it would be true that

Accepted Answer

A)  there would be no distributional consequences associates with he public debt. 
B)  U.S. residents would essentially owe the public debt to themselves. 
C)  there would be no interest payments on the public debt. 
D)  the public debt would naturally disappear over time. 
A)  there would be no distributional consequences associates with he public debt. 
B)  U.S. residents would essentially owe the public debt to themselves. 
C)  there would be no interest payments on the public debt. 
D)  the public debt would naturally disappear over time.

Question 5

A government budget deficit is

Accepted Answer

A)  an excess of government spending over government revenues during a given time period. 
B)  a situation in which the government's spending is exactly equal to the total taxes and other revenues it collects during a given time period. 
C)  the total value of all outstanding federal government securities. 
D)  all federal government debt irrespective of who owns it. 
A)  an excess of government spending over government revenues during a given time period. 
B)  a situation in which the government's spending is exactly equal to the total taxes and other revenues it collects during a given time period. 
C)  the total value of all outstanding federal government securities. 
D)  all federal government debt irrespective of who owns it.

Question 6

A government budget surplus is

Accepted Answer

A)  a situation in which the supply of goods in the economy is greater than the demand for goods. 
B)  a situation in which the amount spent by the government is greater than the amount collected in taxes. 
C)  the public debt. 
D)  an excess of revenues over government spending. 
A)  a situation in which the supply of goods in the economy is greater than the demand for goods. 
B)  a situation in which the amount spent by the government is greater than the amount collected in taxes. 
C)  the public debt. 
D)  an excess of revenues over government spending.

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

Net public debt is the

Accepted Answer

A)  difference between tax revenues and government expenditures each year. 
B)  sum of accumulated government deficits and surpluses held by individuals and businesses and foreign institutions. 
C)  sum of accumulated government deficits and surpluses held by U.S. government agencies. 
D)  sum of accumulated government deficits and surpluses held by large money center banks. 
A)  difference between tax revenues and government expenditures each year. 
B)  sum of accumulated government deficits and surpluses held by individuals and businesses and foreign institutions. 
C)  sum of accumulated government deficits and surpluses held by U.S. government agencies. 
D)  sum of accumulated government deficits and surpluses held by large money center banks.

Question 9

Are federal budget deficits related to trade deficits?

Accepted Answer

A)  Yes. If U.S. consumers buy too many imported goods, they do not have funds to save, and a budget deficit results. 
B)  No. The budget deficit is entirely a domestic matter, while the trade deficit only affects U.S. citizens who travel abroad. 
C)  Yes. Higher deficit spending goes up results in more government borrowing, and foreign residents who lend funds to the U.S. government have fewer resources to spend U.S. export goods. 
D)  Yes, but only if the quality of U.S. goods and services is deteriorating. 
A)  Yes. If U.S. consumers buy too many imported goods, they do not have funds to save, and a budget deficit results. 
B)  No. The budget deficit is entirely a domestic matter, while the trade deficit only affects U.S. citizens who travel abroad. 
C)  Yes. Higher deficit spending goes up results in more government borrowing, and foreign residents who lend funds to the U.S. government have fewer resources to spend U.S. export goods. 
D)  Yes, but only if the quality of U.S. goods and services is deteriorating.

Question 10

Noncontrollable expenditures are called "noncontrollable" because

Accepted Answer

A)  they increase at the same rate as the public debt. 
B)  they change without congressional action. 
C)  only the president can approve these entitlement payments. 
D)  the political process determines the size of the payments. 
A)  they increase at the same rate as the public debt. 
B)  they change without congressional action. 
C)  only the president can approve these entitlement payments. 
D)  the political process determines the size of the payments.

Question 11

Are federal budget deficits related to trade deficits?

Accepted Answer

A)  Yes. If U.S. consumers buy too many imported goods they don't have money to save and a budget deficit results. 
B)  No. The budget deficit is entirely a domestic matter while the trade deficit only affects U.S. citizens who travel abroad. 
C)  Yes. As deficit spending goes up, it is likely government borrowing will, too. Then foreign residents who lend funds to the U.S. government have less to spend on our goods, so U.S. exports will fall. 
D)  Yes, but only if the quality of U.S. goods and services is deteriorating. 
A)  Yes. If U.S. consumers buy too many imported goods they don't have money to save and a budget deficit results. 
B)  No. The budget deficit is entirely a domestic matter while the trade deficit only affects U.S. citizens who travel abroad. 
C)  Yes. As deficit spending goes up, it is likely government borrowing will, too. Then foreign residents who lend funds to the U.S. government have less to spend on our goods, so U.S. exports will fall. 
D)  Yes, but only if the quality of U.S. goods and services is deteriorating.

Question 12

If the economy is experiencing an inflationary gap in the short run, an increase in the budget surplus

Accepted Answer

A)  will reduce the size of the inflationary gap. 
B)  will increase the size of the inflationary gap. 
C)  will cause an increase in inflation and increase aggregate supply. 
D)  will increase aggregate demand and will increase the price level. 
A)  will reduce the size of the inflationary gap. 
B)  will increase the size of the inflationary gap. 
C)  will cause an increase in inflation and increase aggregate supply. 
D)  will increase aggregate demand and will increase the price level.

Question 13

Some economists believe that deficit spending can impose a burden on future generations. Which of the following does NOT explain the burden?

Accepted Answer

A)  Investment will be crowded out by an increase in current consumption. 
B)  Deficit spending that is allocated to purchases leads to long-term increases in real GDP. 
C)  Future generations will have a smaller capital stock that will reduce their wealth. 
D)  Future generations will have to be taxed at a higher rate. 
A)  Investment will be crowded out by an increase in current consumption. 
B)  Deficit spending that is allocated to purchases leads to long-term increases in real GDP. 
C)  Future generations will have a smaller capital stock that will reduce their wealth. 
D)  Future generations will have to be taxed at a higher rate.

Question 14

Which of the following is true about how trade deficits and government budget deficits are related?

Accepted Answer

A)  The trade deficit leads to a reduction in investment that leads to a government budget deficit. 
B)  The trade deficit leads to a decline in imports relative to exports that leads to a government budget deficit. 
C)  The government budget deficit leads to higher interest rates that will lead to a trade deficit. 
D)  The government budget deficit leads to lower interest rates that will lead to a lower trade deficit. 
A)  The trade deficit leads to a reduction in investment that leads to a government budget deficit. 
B)  The trade deficit leads to a decline in imports relative to exports that leads to a government budget deficit. 
C)  The government budget deficit leads to higher interest rates that will lead to a trade deficit. 
D)  The government budget deficit leads to lower interest rates that will lead to a lower trade deficit.

Question 15

Which of the following is NOT an entitlement?

Accepted Answer

A)  Medicaid 
B)  Social Security 
C)  Federal government salaries 
D)  Medicare 
A)  Medicaid 
B)  Social Security 
C)  Federal government salaries 
D)  Medicare

Question 16

The difference between net public debt and gross public debt is

Accepted Answer

A)  all government interagency borrowing. 
B)  the interest paid annually on the public debt. 
C)  the amount owed to individuals and firms outside the United States. 
D)  the current year's budget deficit from the amount of public debt at the start of the year. 
A)  all government interagency borrowing. 
B)  the interest paid annually on the public debt. 
C)  the amount owed to individuals and firms outside the United States. 
D)  the current year's budget deficit from the amount of public debt at the start of the year.

Question 17

Which of the following is true of the portion of the net public debt held by foreign residents?

Accepted Answer

A)  It will definitely be a benefit to current and future generations of U.S residents, because foreign residents have shown a willingness to lend to the U.S. government in exchange for rates of return significantly lower than they can receive elsewhere in the world. 
B)  It will definitely be a burden on current and future generations of U.S. residents who will have to pay interest on this portion of the debt, thereby transferring a portion of future U.S. incomes abroad. 
C)  It will be a burden on future generations of U.S. residents only if funds that the U.S. government obtains from borrowing are expended on projects with rates of return lower than the rates of interest that the government pays foreign residents. 
D)  It will be a benefit to future generations of U.S. residents only if funds that the U.S. government obtains from borrowing are expended on projects with rates of return lower than the rates of interest that the government pays foreign residents 
A)  It will definitely be a benefit to current and future generations of U.S residents, because foreign residents have shown a willingness to lend to the U.S. government in exchange for rates of return significantly lower than they can receive elsewhere in the world. 
B)  It will definitely be a burden on current and future generations of U.S. residents who will have to pay interest on this portion of the debt, thereby transferring a portion of future U.S. incomes abroad. 
C)  It will be a burden on future generations of U.S. residents only if funds that the U.S. government obtains from borrowing are expended on projects with rates of return lower than the rates of interest that the government pays foreign residents. 
D)  It will be a benefit to future generations of U.S. residents only if funds that the U.S. government obtains from borrowing are expended on projects with rates of return lower than the rates of interest that the government pays foreign residents

Question 18

To compare the net public debt of various countries, the debt has to be compared to

Accepted Answer

A)  the country's trade deficit. 
B)  the country's current budget deficit or surplus. 
C)  the country's real GDP. 
D)  the country's national defense expenditure. 
A)  the country's trade deficit. 
B)  the country's current budget deficit or surplus. 
C)  the country's real GDP. 
D)  the country's national defense expenditure.

Question 19

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 20

In the long run, a higher government budget deficit causes

Accepted Answer

A)  a decrease in both private spending and equilibrium real GDP. 
B)  an increase in both private spending and equilibrium real GDP. 
C)  a decrease in private spending while equilibrium real GDP remains unchanged. 
D)  no change in private spending but a decrease in equilibrium real GDP. 
A)  a decrease in both private spending and equilibrium real GDP. 
B)  an increase in both private spending and equilibrium real GDP. 
C)  a decrease in private spending while equilibrium real GDP remains unchanged. 
D)  no change in private spending but a decrease in equilibrium real GDP.

Exam 14: Deficit Spending and the Public Debt

The public debt is

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

One of the long-run effects of higher government budget deficits is

If no foreign residents owned any of the U.S. public debt, then it would be true that

A government budget deficit is

A government budget surplus is

The long-run effect of increasing government budget deficits

Net public debt is the

Are federal budget deficits related to trade deficits?

Noncontrollable expenditures are called "noncontrollable" because

Are federal budget deficits related to trade deficits?

If the economy is experiencing an inflationary gap in the short run, an increase in the budget surplus

Some economists believe that deficit spending can impose a burden on future generations. Which of the following does NOT explain the burden?

Which of the following is true about how trade deficits and government budget deficits are related?

Which of the following is NOT an entitlement?

The difference between net public debt and gross public debt is

Which of the following is true of the portion of the net public debt held by foreign residents?

To compare the net public debt of various countries, the debt has to be compared to

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

In the long run, a higher government budget deficit causes

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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