Question 1

The official fiscal year budget deficits disappeared from 1998 to 2001.

Accepted Answer

A) True 
 B)False  True

Question 2

The purpose of fiscal policy should be to

Accepted Answer

A)  balance the budget to be fiscally responsible. 
B)  balance aggregate supply and aggregate demand. 
C)  keep taxes low to keep voters happy. 
D)  minimize government spending to avoid wasting money. 
A)  balance the budget to be fiscally responsible. 
B)  balance aggregate supply and aggregate demand. 
C)  keep taxes low to keep voters happy. 
D)  minimize government spending to avoid wasting money. B

Question 3

Deficit is to debt as

Accepted Answer

A)  responsible is to irresponsible. 
B)  increase is to decrease. 
C)  flow is to stock. 
D)  important is to unimportant. 
A)  responsible is to irresponsible. 
B)  increase is to decrease. 
C)  flow is to stock. 
D)  important is to unimportant. C

Question 4

National debt is likely to fall when

Accepted Answer

A)  there is a succession of budget deficits. 
B)  government's expenditure falls short of its receipts. 
C)  government's expenditures exceed its receipts. 
D)  government expenditure equals revenue. 
A)  there is a succession of budget deficits. 
B)  government's expenditure falls short of its receipts. 
C)  government's expenditures exceed its receipts. 
D)  government expenditure equals revenue.

Question 5

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 6

In the early 1990s, economists became alarmed over the national debt because it

Accepted Answer

A)  was larger than three months' GDP. 
B)  was growing faster than GDP. 
C)  had reached twice the size of GDP. 
D)  was growing faster than private debt. 
A)  was larger than three months' GDP. 
B)  was growing faster than GDP. 
C)  had reached twice the size of GDP. 
D)  was growing faster than private debt.

Question 7

Suppose that the economy is currently at full employment.All other things being equal, if the government implements restrictive policies then the appropriate monetary policy is

Accepted Answer

A)  no change from the current policy. 
B)  reduce the growth of the money supply. 
C)  constant growth of the money supply. 
D)  increase the growth of the money supply. 
A)  no change from the current policy. 
B)  reduce the growth of the money supply. 
C)  constant growth of the money supply. 
D)  increase the growth of the money supply.

Question 8

Monetizing the deficit contributes to the inflationary pressures that are already present in the economy.

Accepted Answer

A) True 
 B)False

Question 9

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 10

The national debt is defined as the total

Accepted Answer

A)  amount that U.S.citizens owe to foreigners. 
B)  value that U.S.citizens borrow from foreigners during any time period. 
C)  value of government's indebtedness at any moment in time. 
D)  amount by which government's expenditures exceed receipts during any time period. 
A)  amount that U.S.citizens owe to foreigners. 
B)  value that U.S.citizens borrow from foreigners during any time period. 
C)  value of government's indebtedness at any moment in time. 
D)  amount by which government's expenditures exceed receipts during any time period.

Question 11

If the national debt is owed entirely to U.S.citizens,

Accepted Answer

A)  paying off the debt will necessarily stimulate growth. 
B)  future interest payments on the debt are not a burden to the nation as a whole. 
C)  future economic growth will necessarily be slowed. 
D)  the debt constitutes a burden to these citizens. 
A)  paying off the debt will necessarily stimulate growth. 
B)  future interest payments on the debt are not a burden to the nation as a whole. 
C)  future economic growth will necessarily be slowed. 
D)  the debt constitutes a burden to these citizens.

Question 12

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 13

The policy mix that the Clinton administration sought in early 1993 was a

Accepted Answer

A)  smaller budget deficit and tighter monetary policy. 
B)  smaller budget deficit and looser monetary policy. 
C)  larger budget deficit and looser monetary policy. 
D)  larger budget deficit and tighter monetary policy. 
A)  smaller budget deficit and tighter monetary policy. 
B)  smaller budget deficit and looser monetary policy. 
C)  larger budget deficit and looser monetary policy. 
D)  larger budget deficit and tighter monetary policy.

Question 14

In 2010, the debt-to-GDP ratio increased to roughly the same ratio as the 1990s.

Accepted Answer

A) True 
 B)False

Question 15

If the level of government spending increases at the same time the Fed is pursuing contractionary monetary policy, we know that

Accepted Answer

A)  incomes will fall. 
B)  the interest rate will rise. 
C)  incomes will rise. 
D)  the interest rate will fall. 
A)  incomes will fall. 
B)  the interest rate will rise. 
C)  incomes will rise. 
D)  the interest rate will fall.

Question 16

In contrast to Argentina in 2001, the United States debt is less of a burden because the U.S.debt is

Accepted Answer

A)  an obligation to pay over a longer period of time. 
B)  owed entirely to U.S.citizens and banks. 
C)  an obligation to pay in domestic currency. 
D)  an obligation to pay in foreign currency. 
A)  an obligation to pay over a longer period of time. 
B)  owed entirely to U.S.citizens and banks. 
C)  an obligation to pay in domestic currency. 
D)  an obligation to pay in foreign currency.

Question 17

For which of the following time periods did the U.S.have a budget surplus?

Accepted Answer

A)  1990-1993 
B)  1998-2001 
C)  2003-2006 
D)  The U.S.did not have a surplus in any of these time periods. 
A)  1990-1993 
B)  1998-2001 
C)  2003-2006 
D)  The U.S.did not have a surplus in any of these time periods.

Question 18

Monetization of the deficit (or debt) means that

Accepted Answer

A)  the government uses monetary policy to control the economy rather than fiscal policy. 
B)  inflation accounting corrects for price increases. 
C)  the Fed buys newly issued debt and increases the money supply. 
D)  the amount of money in circulation is equal to the size of the debt. 
A)  the government uses monetary policy to control the economy rather than fiscal policy. 
B)  inflation accounting corrects for price increases. 
C)  the Fed buys newly issued debt and increases the money supply. 
D)  the amount of money in circulation is equal to the size of the debt.

Question 19

The structural deficit can be used to estimate the thrust of current fiscal policy.

Accepted Answer

A) True 
 B)False

Question 20

A constitutional amendment requiring an annually balanced budget would help stabilize the economy.

Accepted Answer

A) True 
 B)False

Exam 33: Budget Deficits in the Short and Long Run

The official fiscal year budget deficits disappeared from 1998 to 2001.

The purpose of fiscal policy should be to

Deficit is to debt as

National debt is likely to fall when

The argument that budget deficits are inflationary is

In the early 1990s, economists became alarmed over the national debt because it

Suppose that the economy is currently at full employment.All other things being equal, if the government implements restrictive policies then the appropriate monetary policy is

Monetizing the deficit contributes to the inflationary pressures that are already present in the economy.

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

The national debt is defined as the total

If the national debt is owed entirely to U.S.citizens,

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

The policy mix that the Clinton administration sought in early 1993 was a

In 2010, the debt-to-GDP ratio increased to roughly the same ratio as the 1990s.

If the level of government spending increases at the same time the Fed is pursuing contractionary monetary policy, we know that

In contrast to Argentina in 2001, the United States debt is less of a burden because the U.S.debt is

For which of the following time periods did the U.S.have a budget surplus?

Monetization of the deficit (or debt) means that

The structural deficit can be used to estimate the thrust of current fiscal policy.

A constitutional amendment requiring an annually balanced budget would help stabilize the economy.

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

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

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