Question 1

Following the financial collapse in late 2008, the deficit increased in part because of the

Accepted Answer

A)  high short-term interest rates and restrictive monetary policy.
B)  massive expansion of foreign aid to Central American democracies.
C)  troubled Asset Relief Program (TARP) , increasing federal spending by about $750 billion.
D)  surge in illegal immigration. C

Question 2

The argument that a Balanced Budget Amendment would be "pro-cyclical" means that it would cause

Accepted Answer

A)  bad times to be better than they would otherwise be.
B)  good times to be worse than they would otherwise be.
C)  bad times to be worse than they would otherwise be.
D)  bad times to be better and good times to be worse than they would otherwise be. C

Question 3

Compared to Italy and Japan the debt as a percentage of GDP in the US is

Accepted Answer

A)  substantially greater.
B)  substantially smaller.
C)  slightly smaller.
D)  roughly equal. B

Question 4

Suppose an economist is analyzing the impact of a budget deficit used to finance a significant infrastructure project that will pay significant dividends in the coming years. That economist will focus on

Accepted Answer

A)  strictly the amount borrowed.
B)  strictly the inflation adjusted amount borrowed.
C)  strictly the ratio of the deficit to GDP
D)  both the ratio of the deficit to GDP and whether what is purchased with the borrowed money will produce enough gains to be worth that borrowed.

Question 5

The portion of US debt owned by various government trust funds

Accepted Answer

A)  Dropped quickly from 2010 to 2015 from a peak in the 2010
B)  continues to rise
C)  dropped to an all-time low in 2015
D)  has remained constant (by law)

Question 6

The budget deficit/surplus projections for 2005 that were made in 2001 were wrong because there was an

Accepted Answer

A)  unanticipated increase in homeland security spending.
B)  unanticipated increase in interest rates.
C)  anticipated increase in immigration.
D)  anticipated increase in defense spending.

Question 7

Compared to the U.K. and Germany the debt as a percentage of GDP in the US is

Accepted Answer

A)  somewhat greater.
B)  substantially smaller.
C)  somewhat smaller.
D)  roughly equal.

Question 8

Many economists look at the Federal Budget and see that it should be broken into

Accepted Answer

A)  an operating budget and a defense budget.
B)  a capital budget and an everyday budget.
C)  an operating budget and a capital budget.
D)  a defense budget and a non-defense budget.

Question 9

As a percentage of GDP, the largest deficits in the twentieth century

Accepted Answer

A)  resulted from the Vietnam War.
B)  resulted from World War II.
C)  were caused by huge tax cuts in the 1980s.
D)  resulted from spending increases in the 1990s.

Question 10

In which of the decades below was the deficit as a percentage of GDP the largest?

Accepted Answer

A)  The 1950s.
B)  The 1960s.
C)  The 1970s.
D)  The 1980s.

Question 11

The budget deficit/surplus projections for 2003 that were made in 2000 were wrong because there was an

Accepted Answer

A)  unanticipated recession.
B)  unanticipated increase in interest rates.
C)  anticipated increase in immigration.
D)  anticipated increase in defense spending.

Question 12

The national debt is the

Accepted Answer

A)  amount by which revenues exceed expenditures.
B)  total amount owed by the federal government.
C)  amount by which revenues fall short of projections.
D)  amount by which expenditures exceed revenues.

Question 13

When analyzing the impact of a budget deficit, an economist will focus on

Accepted Answer

A)  strictly the amount borrowed.
B)  strictly the inflation adjusted amount borrowed.
C)  strictly the ratio of the deficit to GDP (it doesn't matter what is purchased with the borrowed money) .
D)  the ratio of the deficit to GDP and whether what is purchased with the borrowed money can be considered an investment.

Question 14

Compared to the Canada and Germany in recent years, the debt as a percentage of GDP in the US is

Accepted Answer

A)  substantially greater.
B)  substantially smaller.
C)  slightly smaller.
D)  negligible.

Question 15

If monetary policy is unchanged, the outstanding national debt will increase whenever

Accepted Answer

A)  government tax receipts exceed government spending.
B)  there is a surplus in the federal budget.
C)  Social Security tax receipts exceed Social Security benefit payments.
D)  government spending exceeds government tax receipts.

Question 16

Which of the following events occurred during the 2000 to 2005 time-frame and had an important impact on the deficit/surplus projections?

Accepted Answer

A)  The steep decline in taxable capital gains that resulted from declines in the Stock Market from March 2000 to the end of 2002.
B)  The increase in interest rates from 2001 to 2003.
C)  The increase in inflation rates from 2000 to 2002.
D)  The decrease in unemployment rates from 2002 to 2003.

Question 17

If a Balanced Budget Amendment to the U.S. Constitution were passed, during economic prosperity, such an amendment would

Accepted Answer

A)  cause those good times to be even better
B)  dampen those good times
C)  have no impact on the economy
D)  throw the economy into a depression

Question 18

Suppose an economist is analyzing the impact of a debt and its ability to be paid. That economist will focus on

Accepted Answer

A)  strictly the debt.
B)  strictly the inflation adjusted amount of debt.
C)  strictly the ratio of the debt to GDP
D)  both the ratio of the debt to GDP and the interest payments as a percentage of GDP

Question 19

If a Balanced Budget Amendment to the U.S. Constitution were passed, during an economic slowdown, such an amendment would

Accepted Answer

A)  necessitate a tax cut or spending increase or both
B)  necessitate a tax increase or spending cut or both
C)  necessitate an increase in interest rates
D)  have no impact

Question 20

In which of the decades below was the inflation-adjusted deficit largest?

Accepted Answer

A)  The 1940s.
B)  The 1950s.
C)  The 1960s.
D)  The 1980s.

Exam 12: Federal Deficits, Surpluses, and the National Debt