Question 1

Figure 16-2  
-The Federal Reserve may choose to monetize the debt in order to

Accepted Answer

A)  reduce the burden of the national debt. 
B)  shift the supply curve of money outward. 
C)  shift the demand curve for money inward. 
D)  reduce the volume of reserves in commercial banks. 
A)  reduce the burden of the national debt. 
B)  shift the supply curve of money outward. 
C)  shift the demand curve for money inward. 
D)  reduce the volume of reserves in commercial banks.

Question 2

Proper inflation accounting is necessary to measure the size of the real deficit because

Accepted Answer

A)  as a lender,the government gains from inflation. 
B)  otherwise,the deficit is understated in inflationary times. 
C)  the government is a borrower that pays back dollars of less real value in inflationary times. 
D)  interest payments tend to fall in inflationary times. 
A)  as a lender,the government gains from inflation. 
B)  otherwise,the deficit is understated in inflationary times. 
C)  the government is a borrower that pays back dollars of less real value in inflationary times. 
D)  interest payments tend to fall in inflationary times.

Question 3

At levels of GDP above full employment,the federal budget would usually be in a deficit position.

Accepted Answer

A) True 
 B)False

Question 4

The Fed and the government are working against each other if,as the government cuts taxes to promote economic growth,the Fed

Accepted Answer

A)  sells government securities. 
B)  buys government securities. 
C)  lowers the discount rate. 
D)  lowers the prime rate. 
A)  sells government securities. 
B)  buys government securities. 
C)  lowers the discount rate. 
D)  lowers the prime rate.

Question 5

In the long run,aggregate demand controls,no matter what happens to aggregate supply.

Accepted Answer

A) True 
 B)False

Question 6

The blame for failing to address the budget deficits of the 1980s and early 1990s

Accepted Answer

A)  is clearly the fault of the Republican administrations. 
B)  is clearly the fault of the Democratic Congresses. 
C)  is a political question rather than an economic question. 
D)  is an economic question rather than a political question. 
A)  is clearly the fault of the Republican administrations. 
B)  is clearly the fault of the Democratic Congresses. 
C)  is a political question rather than an economic question. 
D)  is an economic question rather than a political question.

Question 7

Lately,the ratio of debt to GDP has been

Accepted Answer

A)  rising at a small rate. 
B)  rising steadily. 
C)  falling modestly. 
D)  staying constant. 
A)  rising at a small rate. 
B)  rising steadily. 
C)  falling modestly. 
D)  staying constant.

Question 8

The national debt is the

Accepted Answer

A)  result of previous budget deficits. 
B)  result of rising interest rates. 
C)  result of previous budget surpluses. 
D)  result of efficient balancing. 
A)  result of previous budget deficits. 
B)  result of rising interest rates. 
C)  result of previous budget surpluses. 
D)  result of efficient balancing.

Question 9

In 2010 and 2011,many observers were worried that the

Accepted Answer

A)  budget would not be balanced and fiscal stimulus would be withdrawn too soon. 
B)  budget would not be balanced and monetary stimulus would be withdrawn too soon. 
C)  budget would be balanced and fiscal stimulus would be withdrawn too soon. 
D)  budget would be balanced and monetary stimulus would be withdrawn too soon. 
A)  budget would not be balanced and fiscal stimulus would be withdrawn too soon. 
B)  budget would not be balanced and monetary stimulus would be withdrawn too soon. 
C)  budget would be balanced and fiscal stimulus would be withdrawn too soon. 
D)  budget would be balanced and monetary stimulus would be withdrawn too soon.

Question 10

During the late 1980s and early 1990s,most of the budget deficits were accounted for by

Accepted Answer

A)  the decline of foreign investment in the United States. 
B)  the downturn in the economy. 
C)  deliberate fiscal policy changes. 
D)  All of the above are correct. 
A)  the decline of foreign investment in the United States. 
B)  the downturn in the economy. 
C)  deliberate fiscal policy changes. 
D)  All of the above are correct.

Question 11

If the economy is in an inflationary gap,which of the following is the least appropriate policy mix?

Accepted Answer

A)  a budget surplus and expansionary monetary policy 
B)  a budget deficit and expansionary monetary policy 
C)  a budget deficit and contractionary monetary policy 
D)  a budget surplus and contractionary monetary policy 
A)  a budget surplus and expansionary monetary policy 
B)  a budget deficit and expansionary monetary policy 
C)  a budget deficit and contractionary monetary policy 
D)  a budget surplus and contractionary monetary policy

Question 12

If the government ran a major deficit,and there was no noticeable effect on the level of GDP,this could be taken as evidence of

Accepted Answer

A)  crowding-in. 
B)  structural deficit. 
C)  crowding-out. 
D)  monetary policy ineffectiveness. 
A)  crowding-in. 
B)  structural deficit. 
C)  crowding-out. 
D)  monetary policy ineffectiveness.

Question 13

It is most likely that the federal government will never actually pay off the national debt.

Accepted Answer

A) True 
 B)False

Question 14

A federal budget deficit places a genuine burden on future generations when the

Accepted Answer

A)  crowding-out effect is stronger than the crowding-in effect. 
B)  crowding-in effect is stronger than the crowding-out effect. 
C)  crowding-out and crowding-in effects work in opposite directions. 
D)  crowding-out and crowding-in effects operate in the same direction. 
A)  crowding-out effect is stronger than the crowding-in effect. 
B)  crowding-in effect is stronger than the crowding-out effect. 
C)  crowding-out and crowding-in effects work in opposite directions. 
D)  crowding-out and crowding-in effects operate in the same direction.

Question 15

If the inflation rate falls,what will happen to the budget deficit?

Accepted Answer

A)  It will rise,because government spending will rise. 
B)  It will rise,because interest payments will rise. 
C)  It will fall,because tax receipts will increase. 
D)  It will fall,because interest payments will fall. 
A)  It will rise,because government spending will rise. 
B)  It will rise,because interest payments will rise. 
C)  It will fall,because tax receipts will increase. 
D)  It will fall,because interest payments will fall.

Question 16

Which of the following statements about the national debt has the most validity?

Accepted Answer

A)  Our large national debt can bankrupt the nation. 
B)  If only Americans hold the debt,then payments of interest and principal are simply transfers from some Americans to other Americans. 
C)  Our large national debt can lead to subjection by the people (especially foreigners)who hold the debt. 
D)  The national debt represents a burden to future generations who will have to make huge payments of interest and principal. 
A)  Our large national debt can bankrupt the nation. 
B)  If only Americans hold the debt,then payments of interest and principal are simply transfers from some Americans to other Americans. 
C)  Our large national debt can lead to subjection by the people (especially foreigners)who hold the debt. 
D)  The national debt represents a burden to future generations who will have to make huge payments of interest and principal.

Question 17

In 2010,which of the following was true regarding the extremely large deficits that the U.S.recently encountered?

Accepted Answer

A)  Most politicians and economists argued that the deficit had to be reduced. 
B)  Most politicians argued that the deficit had to be reduced but economists cautioned against this course of action. 
C)  Most economists argued that the deficit had to be reduced but politicians cautioned against this course of action. 
D)  Both politicians and economist cautioned against deficit reduction. 
A)  Most politicians and economists argued that the deficit had to be reduced. 
B)  Most politicians argued that the deficit had to be reduced but economists cautioned against this course of action. 
C)  Most economists argued that the deficit had to be reduced but politicians cautioned against this course of action. 
D)  Both politicians and economist cautioned against deficit reduction.

Question 18

The argument that budget deficits are inflationary is

Accepted Answer

A)  always correct. 
B)  correct only when the deficit is monetized. 
C)  correct only when the aggregate supply curve is horizontal. 
D)  correct only when the aggregate supply curve is upward sloping. 
A)  always correct. 
B)  correct only when the deficit is monetized. 
C)  correct only when the aggregate supply curve is horizontal. 
D)  correct only when the aggregate supply curve is upward sloping.

Question 19

By 2007 the deficit

Accepted Answer

A)  was out of control and increased substantially soon thereafter. 
B)  seemed under control but increased substantially soon thereafter. 
C)  was out of control but decreased substantially soon thereafter. 
D)  seemed under control and decreased substantially soon thereafter. 
A)  was out of control and increased substantially soon thereafter. 
B)  seemed under control but increased substantially soon thereafter. 
C)  was out of control but decreased substantially soon thereafter. 
D)  seemed under control and decreased substantially soon thereafter.

Question 20

The U.S.national debt at the end of 2014 was about $30 trillion.

Accepted Answer

A) True 
 B)False

Figure 16-2 -The Federal Reserve may choose to monetize the debt in order to

Proper inflation accounting is necessary to measure the size of the real deficit because

At levels of GDP above full employment,the federal budget would usually be in a deficit position.

The Fed and the government are working against each other if,as the government cuts taxes to promote economic growth,the Fed

In the long run,aggregate demand controls,no matter what happens to aggregate supply.

The blame for failing to address the budget deficits of the 1980s and early 1990s

Lately,the ratio of debt to GDP has been

The national debt is the

In 2010 and 2011,many observers were worried that the

During the late 1980s and early 1990s,most of the budget deficits were accounted for by

If the economy is in an inflationary gap,which of the following is the least appropriate policy mix?

If the government ran a major deficit,and there was no noticeable effect on the level of GDP,this could be taken as evidence of

It is most likely that the federal government will never actually pay off the national debt.

A federal budget deficit places a genuine burden on future generations when the

If the inflation rate falls,what will happen to the budget deficit?

Which of the following statements about the national debt has the most validity?

In 2010,which of the following was true regarding the extremely large deficits that the U.S.recently encountered?

The argument that budget deficits are inflationary is

By 2007 the deficit

The U.S.national debt at the end of 2014 was about $30 trillion.

What Is Economics

The Economy Myth and Reality

The Fundamental Economic Problem Scarcity and Choice

Supply and Demand An Initial Look

An Introduction To Macroeconomics

The Goals Of Macroeconomic Policy

Economic Growth Theory And Policy

Aggregate Demand and The Powerful Consumer

Demand Side Equilibrium Unemployment Or Inflation

Bringing In The Supply Side Unemployment and Inflation

Managing Aggregate Demand Fiscal Policy

Money and The Banking System

Monetary Policy Conventional and Unconventional

The Financial Crisis and The Great Recession

The Debate Over Monetary and Fiscal Policy

The Trade Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System Order Or Disorder

Exchange Rates and The Macroeconomy

Filters

Exam 16: Budget Deficits In The Short and Long Run

Figure 16-2 -The Federal Reserve may choose to monetize the debt in order to

Proper inflation accounting is necessary to measure the size of the real deficit because

At levels of GDP above full employment,the federal budget would usually be in a deficit position.

The Fed and the government are working against each other if,as the government cuts taxes to promote economic growth,the Fed

In the long run,aggregate demand controls,no matter what happens to aggregate supply.

The blame for failing to address the budget deficits of the 1980s and early 1990s

Lately,the ratio of debt to GDP has been

The national debt is the

In 2010 and 2011,many observers were worried that the

During the late 1980s and early 1990s,most of the budget deficits were accounted for by

If the economy is in an inflationary gap,which of the following is the least appropriate policy mix?

If the government ran a major deficit,and there was no noticeable effect on the level of GDP,this could be taken as evidence of

It is most likely that the federal government will never actually pay off the national debt.

A federal budget deficit places a genuine burden on future generations when the

If the inflation rate falls,what will happen to the budget deficit?

Which of the following statements about the national debt has the most validity?

In 2010,which of the following was true regarding the extremely large deficits that the U.S.recently encountered?

The argument that budget deficits are inflationary is

By 2007 the deficit

The U.S.national debt at the end of 2014 was about $30 trillion.

What Is Economics

The Economy Myth and Reality

The Fundamental Economic Problem Scarcity and Choice

Supply and Demand An Initial Look

An Introduction To Macroeconomics

The Goals Of Macroeconomic Policy

Economic Growth Theory And Policy

Aggregate Demand and The Powerful Consumer

Demand Side Equilibrium Unemployment Or Inflation

Bringing In The Supply Side Unemployment and Inflation

Managing Aggregate Demand Fiscal Policy

Money and The Banking System

Monetary Policy Conventional and Unconventional

The Financial Crisis and The Great Recession

The Debate Over Monetary and Fiscal Policy

The Trade Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System Order Or Disorder

Exchange Rates and The Macroeconomy

Filters