Question 1

If the deficit is 0.1 times GDP,the existing debt/GDP ratio is 0.5,and the growth rate of nominal GDP is 0.04,then the change in the debt-GDP ratio is

Accepted Answer

A)  +0.08
B)  +0.075.
C)  0) 
D)  -0.075. A

Question 2

The total value of government bonds outstanding at any particular time is called the

Accepted Answer

A)  government debt.
B)  government deficit.
C)  seignorage revenue.
D)  yield curve. A

Question 3

Which of the following policies would not prevent the Social Security trust fund from running out of assets?

Accepted Answer

A)  Reduce promised benefits
B)  Reduce taxes
C)  Increase taxes
D)  Earn a higher rate of return B

Question 4

Real money demand in the economy is given by
L = 0.3Y - 600i,
where Y is real income and i is the nominal interest rate.In equilibrium,real money demand L equals real money supply M/P.Suppose that Y equals 2000 and the real interest rate is 5%.
(a)At what rate of inflation is seignorage maximized?
(b)What is the maximum amount of seignorage revenue?

Accepted Answer

The answer of Real money demand in the economy is...

Question 5

Government capital consists of

Accepted Answer

A)  money owned by the government.
B)  securities owned by the government.
C)  the buildings owned by the government in Washington,D.C.
D)  long-lived physical assets owned by the government.

Question 6

According to the Ricardian equivalence proposition,a government budget deficit created by a temporary tax cut

Accepted Answer

A)  does not affect desired national saving.
B)  does not affect expected future taxes.
C)  reduces desired investment spending.
D)  increases the real interest rate.

Question 7

To earn a higher return on the assets in the Social Security trust fund,a suggestion has been made to allow the trust fund to

Accepted Answer

A)  buy government bonds.
B)  sell limited partnerships.
C)  sell insurance.
D)  invest in the stock market.

Question 8

The total amount of taxes paid divided by before-tax income is the

Accepted Answer

A)  median taxpayer rate.
B)  rate of hysteresis.
C)  average tax rate.
D)  marginal tax rate.

Question 9

Real money demand in the economy is given by
L = 0.5Y - 2500i,
Where Y is real income and i is the nominal interest rate.In equilibrium,real money demand L equals real money supply M/P.Suppose that Y equals 1000 and the real interest rate is 0.02.What is the maximum amount of seignorage revenue?

Accepted Answer

A)  11.11
B)  20.25
C)  22.25
D)  24.75

Question 10

The type of tax receipts that has shown the slowest growth since World War II has been

Accepted Answer

A)  personal taxes.
B)  contributions for social insurance.
C)  taxes on production and imports.
D)  corporate taxes.

Question 11

Since 1960,the only period of several years when the full-employment government budget deficit was negative (that is,there was a full-employment surplus)was

Accepted Answer

A)  from 2000 to 2005.
B)  the late 1990s and early 2000s.
C)  the mid-1980s.
D)  the early 1970s.

Question 12

The following data describe government spending and revenue.
  
(a)How much is the budget deficit?
(b)How much is the primary budget deficit?
(c)How much is the full-employment budget deficit?
(d)How much is the current deficit?
(e)How much is the current primary deficit?

Accepted Answer

The answer of The following data describe government spending and...

Question 13

Suppose that real GDP is 10,000 and remains constant,nominal GDP is initially 30,000,inflation is 3%,and the debt-GDP ratio is 0.7.Find the largest nominal deficit that the government can run without raising the debt-GDP ratio.

Accepted Answer

The answer of Suppose that real GDP is 10,000 and...

Question 14

All of the following are government capital EXCEPT

Accepted Answer

A)  roads.
B)  schools.
C)  Treasury securities.
D)  mass-transit systems.

Question 15

From the 1950s to the 2010s,transfer payments' share of GDP

Accepted Answer

A)  steadily increased.
B)  steadily decreased.
C)  remained fairly steady.
D)  increased during Democratic administrations and decreased during Republican administrations.

Question 16

The stimulus package of 2009 had the effect of

Accepted Answer

A)  causing higher rates of inflation to occur.
B)  giving new foreign aid to help less developed countries.
C)  significantly raising the debt to GDP ratio.
D)  reducing the primary government deficit.

Question 17

You are given the following budget data for a country that has both a central government and local governments.

(a)How much is the deficit for the central government,the local government,and the total of the central and local governments?
(b)How much is the primary deficit for the central government,the local government,and the total of the central and local governments?

Accepted Answer

The answer of You are given the following budget data...

Question 18

Taxes distort economic behavior because they

Accepted Answer

A)  change the composition of income and spending.
B)  cause deviations in economic behavior from the efficient,free-market outcome.
C)  change the balance between private and public expenditures.
D)  change the composition of consumption,investment,government spending,and net exports.

Question 19

Subtracting government investment from government purchases gives us the amount of government

Accepted Answer

A)  outlays.
B)  primary expenditures.
C)  secondary spending.
D)  consumption expenditures.

Question 20

Classical economists think that lump-sum tax changes

Accepted Answer

A)  should be used to smooth business cycles.
B)  have a powerful effect on the economy.
C)  affect aggregate demand after a lag.
D)  have no effect because of Ricardian equivalence.

Exam 15: Government Spending and Its Financing