Question 1

Among economists, it is generally believed that

Accepted Answer

A)  the federal budget deficit will be eliminated within 10 years. 
B)  the public debt will be paid off within 10 years. 
C)  entitlement spending will continue to decline. 
D)  the federal government will find it difficult to cut entitlement programs. 
A)  the federal budget deficit will be eliminated within 10 years. 
B)  the public debt will be paid off within 10 years. 
C)  entitlement spending will continue to decline. 
D)  the federal government will find it difficult to cut entitlement programs.

Question 2

Between 2000 and 2017, the U.S. government budget deficit

Accepted Answer

A)  has been more than 100% 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 more than 100% 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

A federal surplus of $100 billion means that

Accepted Answer

A)  the government has a total debt of $100 billion. 
B)  government spending is $100 billion a year. 
C)  the government is spending $100 billion a year less than it is collecting in taxes. 
D)  the government plans on collecting $100 billion in taxes this year. 
A)  the government has a total debt of $100 billion. 
B)  government spending is $100 billion a year. 
C)  the government is spending $100 billion a year less than it is collecting in taxes. 
D)  the government plans on collecting $100 billion in taxes this year.

Question 4

The two ways in which deficit spending can impose a burden on future generations are

Accepted Answer

A)  by requiring future generations to face higher taxes and to work with a lower accumulated stock of capital goods. 
B)  by requiring future generations to face lower government spending and to utilize a smaller stock of human capital. 
C)  by substituting private goods for public goods and thereby shifting resources to foreign residents. 
D)  by substituting private goods for public goods and thereby benefiting only large businesses. 
A)  by requiring future generations to face higher taxes and to work with a lower accumulated stock of capital goods. 
B)  by requiring future generations to face lower government spending and to utilize a smaller stock of human capital. 
C)  by substituting private goods for public goods and thereby shifting resources to foreign residents. 
D)  by substituting private goods for public goods and thereby benefiting only large businesses.

Question 5

Suppose the economy is initially experiencing a recessionary gap. An increase in the size of the budget deficit will

Accepted Answer

A)  increase the size of the recessionary gap. 
B)  reduce the size of the recessionary gap. 
C)  lead to an increase in prices with no increase in real GDP. 
D)  lead to a decrease in prices with an increase in real GDP. 
A)  increase the size of the recessionary gap. 
B)  reduce the size of the recessionary gap. 
C)  lead to an increase in prices with no increase in real GDP. 
D)  lead to a decrease in prices with an increase in real GDP.

Question 6

Explain the differences between the public debt and the government budget deficit.

Accepted Answer

The public debt is a stock measured at a

Question 7

Suppose that the government of Smallville spends $2 trillion in 2018 and receives tax revenues of $1.5 trillion in that same year. Which of the following is TRUE?

Accepted Answer

A)  Smallville has a budget surplus of $0.5 trillion. 
B)  Smallville has a budget deficit of $0.5 trillion. 
C)  Smallville has a trade deficit of $0.5 trillion. 
D)  Smallville has a trade surplus of $0.5 trillion. 
A)  Smallville has a budget surplus of $0.5 trillion. 
B)  Smallville has a budget deficit of $0.5 trillion. 
C)  Smallville has a trade deficit of $0.5 trillion. 
D)  Smallville has a trade surplus of $0.5 trillion.

Question 8

Which of the following is the best statement about how the amount of the net public debt that a typical individual owes to the holders of the debt has varied in the recent past?

Accepted Answer

A)  The amount has not varied much over time. 
B)  The amount has varied a lot over time. 
C)  The amount has steadily increased over time. 
D)  The amount has steadily decreased over time. 
A)  The amount has not varied much over time. 
B)  The amount has varied a lot over time. 
C)  The amount has steadily increased over time. 
D)  The amount has steadily decreased over time.

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

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

Question 11

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 12

Gross public debt minus all government interagency borrowing is

Accepted Answer

A)  the money supply. 
B)  net public debt. 
C)  U.S. Treasury bonds. 
D)  an entitlement. 
A)  the money supply. 
B)  net public debt. 
C)  U.S. Treasury bonds. 
D)  an entitlement.

Question 13

All of the following are noncontrollable government expenditures EXCEPT

Accepted Answer

A)  Social Security. 
B)  national defense spending. 
C)  Medicare. 
D)  unemployment benefits. 
A)  Social Security. 
B)  national defense spending. 
C)  Medicare. 
D)  unemployment benefits.

Question 14

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 15

If the government has a spending flow that exceeds the revenues it collects, the government will run a ________ that year.

Accepted Answer

A)  debt 
B)  deficit 
C)  debt and a deficit 
D)  surplus 
A)  debt 
B)  deficit 
C)  debt and a deficit 
D)  surplus

Question 16

Suppose that the federal government had a budget deficit of $80 billion in year 1 and $90 billion in year 2, but that it experiences budget surpluses of $40 billion in year 3 and $30 billion in year 4. Also assume that the government uses any budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have

Accepted Answer

A)  decreased by $100 billion. 
B)  increased by $240 billion. 
C)  increased by $100 billion. 
D)  decreased by $240 billion. 
A)  decreased by $100 billion. 
B)  increased by $240 billion. 
C)  increased by $100 billion. 
D)  decreased by $240 billion.

Question 17

Which of the following statements about the budget deficit is TRUE?

Accepted Answer

A)  It is a stock variable. 
B)  It is a flow variable. 
C)  It is equal to the public debt. 
D)  none of the above 
A)  It is a stock variable. 
B)  It is a flow variable. 
C)  It is equal to the public debt. 
D)  none of the above

Question 18

A trade surplus occurs when

Accepted Answer

A)  the value of imports is less than the value of exports. 
B)  government spending is less than total tax revenue. 
C)  consumption is greater than disposable income. 
D)  none of the above. 
A)  the value of imports is less than the value of exports. 
B)  government spending is less than total tax revenue. 
C)  consumption is greater than disposable income. 
D)  none of the above.

Question 19

In the short run, a fiscal policy action that results in a reduction in the size of the budget deficit will cause

Accepted Answer

A)  an increase in real GDP with stable prices if the economy was below full employment. 
B)  a reduction in real GDP with falling prices if the economy was below or at full employment. 
C)  an inflationary gap if the economy was initially operating at full employment. 
D)  an inflationary gap if the economy was initially operating below full employment. 
A)  an increase in real GDP with stable prices if the economy was below full employment. 
B)  a reduction in real GDP with falling prices if the economy was below or at full employment. 
C)  an inflationary gap if the economy was initially operating at full employment. 
D)  an inflationary gap if the economy was initially operating below full employment.

Question 20

Which of the following is a stock variable?

Accepted Answer

A)  public debt 
B)  wealth 
C)  money supply 
D)  all of the above 
A)  public debt 
B)  wealth 
C)  money supply 
D)  all of the above

Exam 14: Deficit Spending and the Public Debt

Among economists, it is generally believed that

Between 2000 and 2017, the U.S. government budget deficit

A federal surplus of $100 billion means that

The two ways in which deficit spending can impose a burden on future generations are

Suppose the economy is initially experiencing a recessionary gap. An increase in the size of the budget deficit will

Explain the differences between the public debt and the government budget deficit.

Suppose that the government of Smallville spends $2 trillion in 2018 and receives tax revenues of $1.5 trillion in that same year. Which of the following is TRUE?

Which of the following is the best statement about how the amount of the net public debt that a typical individual owes to the holders of the debt has varied in the recent past?

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

A government budget deficit occurs during a budget year when

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

Gross public debt minus all government interagency borrowing is

All of the following are noncontrollable government expenditures EXCEPT

Are federal budget deficits related to trade deficits?

If the government has a spending flow that exceeds the revenues it collects, the government will run a ________ that year.

Which of the following statements about the budget deficit is TRUE?

A trade surplus occurs when

In the short run, a fiscal policy action that results in a reduction in the size of the budget deficit will cause

Which of the following is a stock variable?

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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