Question 1

Higher interest rates as a result of deficit spending

Accepted Answer

A)  raise 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)  raise 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. D

Question 2

As a possible approach to eliminating the government budget deficit, increasing taxes for everyone would

Accepted Answer

A)  mean only a small increase in taxes. 
B)  lead to an inflationary gap. 
C)  transfer more goods and services to the government sector. 
D)  lead to a large increase in taxes for every worker. 
A)  mean only a small increase in taxes. 
B)  lead to an inflationary gap. 
C)  transfer more goods and services to the government sector. 
D)  lead to a large increase in taxes for every worker. D

Question 3

Assume the economy is closed and that it is operating at full employment. Which statement is TRUE when the size of the budget deficit decreases?

Accepted Answer

A)  The interest rate will decrease, leading to an increase in investment and capital formation. 
B)  Demand and supply of credit will increase. 
C)  A reduction in the growth of productivity, and a reduction in society's standard of living will occur. 
D)  The increased amount of public goods will crowd out privately produced goods. 
A)  The interest rate will decrease, leading to an increase in investment and capital formation. 
B)  Demand and supply of credit will increase. 
C)  A reduction in the growth of productivity, and a reduction in society's standard of living will occur. 
D)  The increased amount of public goods will crowd out privately produced goods. A

Question 4

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 5

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 6

Since the late 1980s, the share of the net public debt owed to foreign interests has

Accepted Answer

A)  remained constant. 
B)  decreased. 
C)  increased. 
D)  gone up and then down, finally settling at around 10 percent. 
A)  remained constant. 
B)  decreased. 
C)  increased. 
D)  gone up and then down, finally settling at around 10 percent.

Question 7

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 8

A government budget surplus 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 income. A) tax revenues > government spending. B) tax revenues = government spending. C) tax revenues < government spending. D) tax revenues + government spending = personal income.

Question 9

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 10

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 11

One mechanism through which increasing public debt may impact the economy is that the resulting

Accepted Answer

A)  increased competition for funds increases interest rates and causes a reduction in investment. 
B)  increased competition for funds decreases interest rates and causes an increase in investment. 
C)  decreased competition for funds decreases interest rates and causes a reduction in investment. 
D)  decreased competition for funds decreases interest rates and causes an increase in investment. 
A)  increased competition for funds increases interest rates and causes a reduction in investment. 
B)  increased competition for funds decreases interest rates and causes an increase in investment. 
C)  decreased competition for funds decreases interest rates and causes a reduction in investment. 
D)  decreased competition for funds decreases interest rates and causes an increase in investment.

Question 12

When the Social Security Administration holds U.S. Treasury Bonds

Accepted Answer

A)  interagency borrowing has occurred and the government owes itself. 
B)  there is a balanced budget. 
C)  an entitlement has occurred. 
D)  the gross public debt has increased. 
A)  interagency borrowing has occurred and the government owes itself. 
B)  there is a balanced budget. 
C)  an entitlement has occurred. 
D)  the gross public debt has increased.

Question 13

Gross public debt is the amount of funds that

Accepted Answer

A)  U.S. residents owe to foreign residents. 
B)  states owe to the federal government. 
C)  the federal government owes to taxpayers. 
D)  the federal government owes to all holders of U.S. securities. 
A)  U.S. residents owe to foreign residents. 
B)  states owe to the federal government. 
C)  the federal government owes to taxpayers. 
D)  the federal government owes to all holders of U.S. securities.

Question 14

-Suppose that initially there is no public debt. Using the above table, what is the public debt as a percentage of GDP in 2014?

Accepted Answer

A)  0.5 percent 
B)  2.0 percent 
C)  3.6 percent 
D)  8.0 percent 
A)  0.5 percent 
B)  2.0 percent 
C)  3.6 percent 
D)  8.0 percent

Question 15

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 16

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 17

Today, U.S. government spending on entitlements represents ________ of the total federal budget.

Accepted Answer

A)  about 10 percent 
B)  less than 25 percent 
C)  nearly 70 percent 
D)  nearly 100 percent 
A)  about 10 percent 
B)  less than 25 percent 
C)  nearly 70 percent 
D)  nearly 100 percent

Question 18

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 19

Net public debt is

Accepted Answer

A)  the excess of annual government spending over annual tax revenues. 
B)  the excess of annual tax revenues over annual government spending. 
C)  the portion of government debt held by private individuals and firms. 
D)  the sum owed by the public to keep the Social Security system afloat. 
A)  the excess of annual government spending over annual tax revenues. 
B)  the excess of annual tax revenues over annual government spending. 
C)  the portion of government debt held by private individuals and firms. 
D)  the sum owed by the public to keep the Social Security system afloat.

Question 20

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.

Exam 14: Deficit Spending and the Public Debt

Higher interest rates as a result of deficit spending

As a possible approach to eliminating the government budget deficit, increasing taxes for everyone would

Assume the economy is closed and that it is operating at full employment. Which statement is TRUE when the size of the budget deficit decreases?

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

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

Since the late 1980s, the share of the net public debt owed to foreign interests has

Net public debt is the

A government budget surplus occurs during a budget year when

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

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

One mechanism through which increasing public debt may impact the economy is that the resulting

When the Social Security Administration holds U.S. Treasury Bonds

Gross public debt is the amount of funds that

-Suppose that initially there is no public debt. Using the above table, what is the public debt as a percentage of GDP in 2014?

Borrowing to finance the increases in government expenditures

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

Today, U.S. government spending on entitlements represents ________ of the total federal budget.

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

Net public debt is

In the long run, higher government budget deficits will

The Nature of Economics

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