Question 1

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 2

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 3

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 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

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 6

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)  about $50,000 per year 
C)  between $50,000 and $100,000 per year 
D)  about $4,000 per year 
A)  between $50 and $100 per year 
B)  about $50,000 per year 
C)  between $50,000 and $100,000 per year 
D)  about $4,000 per year

Question 7

If the government has no debt initially, but then has annual revenues of $10 billion per year for 4 years and annual expenditures of $10.5 billion per year for 4 years, then the government has

Accepted Answer

A)  a budget surplus of $0.5 billion per year and a debt of $2 billion at the end of the 4 years. 
B)  a budget deficit of $0.5 billion per year and a budget surplus of $2 billion at the end of the 4 years. 
C)  a budget deficit of $0.5 billion per year and a debt of $2 billion at the end of the 4 years. 
D)  a budget surplus of $0.5 billion per year and a surplus of $2 billion at the end of the 4 years. 
A)  a budget surplus of $0.5 billion per year and a debt of $2 billion at the end of the 4 years. 
B)  a budget deficit of $0.5 billion per year and a budget surplus of $2 billion at the end of the 4 years. 
C)  a budget deficit of $0.5 billion per year and a debt of $2 billion at the end of the 4 years. 
D)  a budget surplus of $0.5 billion per year and a surplus of $2 billion at the end of the 4 years.

Question 8

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 9

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 10

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 11

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 resulting 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 resulting 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 12

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 13

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 14

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 15

Media reports often suggest that the increasing public debt is a burden on future generations. What they mean is that

Accepted Answer

A)  it reduces the current level of investment. 
B)  it makes predicting future unemployment levels unpredictable. 
C)  it causes deflation. 
D)  it reduces both nominal and real interest rates. 
A)  it reduces the current level of investment. 
B)  it makes predicting future unemployment levels unpredictable. 
C)  it causes deflation. 
D)  it reduces both nominal and real interest rates.

Question 16

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)  interest payments on government debt. 
A)  the education budget. 
B)  entitlement payments. 
C)  funding for health research. 
D)  interest payments on government debt.

Question 17

In which decade did the United States begin experiencing large trade deficits?

Accepted Answer

A)  1960s 
B)  1970s 
C)  1990s 
D)  2000s 
A)  1960s 
B)  1970s 
C)  1990s 
D)  2000s

Question 18

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 19

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 20

The public debt can be thought of as

Accepted Answer

A)  the total amount consumers owe on their credit cards. 
B)  the total amount in taxes consumers pay to the government. 
C)  accumulated budget deficits and surpluses. 
D)  the total amount the government spends for goods and services. 
A)  the total amount consumers owe on their credit cards. 
B)  the total amount in taxes consumers pay to the government. 
C)  accumulated budget deficits and surpluses. 
D)  the total amount the government spends for goods and services.

Exam 14: Deficit Spending and the Public Debt

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

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?

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

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

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

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

If the government has no debt initially, but then has annual revenues of $10 billion per year for 4 years and annual expenditures of $10.5 billion per year for 4 years, then the government has

How does a government budget deficit occur?

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?

An increase in the public debt would most likely indicate that

Are federal budget deficits related to trade deficits?

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

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

The public debt is

Media reports often suggest that the increasing public debt is a burden on future generations. What they mean is that

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

In which decade did the United States begin experiencing large trade deficits?

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

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

The public debt can be thought of as

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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