Question 1

Like many families, the national debt in 2010 was many times larger than the national income.

Accepted Answer

A) True 
 B)False

Question 2

If the U.S.government decided to pay off the national debt by creating money, what would be the most likely effect?

Accepted Answer

A)  a substantial reduction in real GDP 
B)  a deflationary collapse 
C)  rapid inflation 
D)  an increase in the trade surplus 
A)  a substantial reduction in real GDP 
B)  a deflationary collapse 
C)  rapid inflation 
D)  an increase in the trade surplus

Question 3

Proponents of deficit reduction argue that the principal effect will be an

Accepted Answer

A)  outward shift of the aggregate supply curve. 
B)  inward shift of the aggregate supply curve. 
C)  outward shift of the aggregate demand curve. 
D)  inward shift of the aggregate demand curve. 
A)  outward shift of the aggregate supply curve. 
B)  inward shift of the aggregate supply curve. 
C)  outward shift of the aggregate demand curve. 
D)  inward shift of the aggregate demand curve.

Question 4

Is the national debt a burden to future generations?

Accepted Answer

A)  No, as long as foreigners own a significant share of the national debt. 
B)  No, as long as the national debt is owned purely by U.S.citizens. 
C)  Yes, debt is always a burden to future generations. 
D)  Yes, unless foreigners increase their share of the national debt. 
A)  No, as long as foreigners own a significant share of the national debt. 
B)  No, as long as the national debt is owned purely by U.S.citizens. 
C)  Yes, debt is always a burden to future generations. 
D)  Yes, unless foreigners increase their share of the national debt.

Question 5

Deficits are created by governments running a large debt.

Accepted Answer

A) True 
 B)False

Question 6

The deficit can be defined in simple terms as

Accepted Answer

A)  Tax receipts - government expenditures + transfers. 
B)  Tax receipts + government expenditures + transfers. 
C)  Government expenditures + transfers - tax receipts. 
D)  Government expenditures - transfers - tax receipts. 
A)  Tax receipts - government expenditures + transfers. 
B)  Tax receipts + government expenditures + transfers. 
C)  Government expenditures + transfers - tax receipts. 
D)  Government expenditures - transfers - tax receipts.

Question 7

At the end of 2010, the net national debt per person in the United States was approximately

Accepted Answer

A)  $14 trillion. 
B)  $142 billion. 
C)  $86,000. 
D)  $43,000. 
A)  $14 trillion. 
B)  $142 billion. 
C)  $86,000. 
D)  $43,000.

Question 8

Conventional budget accounting practices tend to overstate deficits in inflationary periods because they

Accepted Answer

A)  ignore the inflation tax. 
B)  confuse repayment of principal with real interest expenditures. 
C)  double count some expenditures. 
D)  understate real interest rates. 
A)  ignore the inflation tax. 
B)  confuse repayment of principal with real interest expenditures. 
C)  double count some expenditures. 
D)  understate real interest rates.

Question 9

Which of the following is true regarding the effect of deficits from 1980-2005 in the U.S.?

Accepted Answer

A)  They did not lead to substantial inflation because the Fed did not monetize the deficits. 
B)  They did not lead to substantial inflation because the Fed did monetize the deficits. 
C)  They led to substantial inflation because the Fed did not monetize the deficits. 
D)  They led to substantial inflation because the Fed did monetize the deficits. 
A)  They did not lead to substantial inflation because the Fed did not monetize the deficits. 
B)  They did not lead to substantial inflation because the Fed did monetize the deficits. 
C)  They led to substantial inflation because the Fed did not monetize the deficits. 
D)  They led to substantial inflation because the Fed did monetize the deficits.

Question 10

Figure 16-1
  
-In Figure 16-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.Y₃ is the full-employment level of income.At Y₃

Accepted Answer

A)  there is an official deficit but a structural budget balance. 
B)  there is a structural deficit but an official budget surplus. 
C)  the official and structural deficit are in balance. 
D)  both the official and structural budgets show a deficit. 
A)  there is an official deficit but a structural budget balance. 
B)  there is a structural deficit but an official budget surplus. 
C)  the official and structural deficit are in balance. 
D)  both the official and structural budgets show a deficit.

Question 11

If the President and Congress agree to balance the budget during a recession, 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 12

Why does the government not have to repay debt, as do private individuals?

Accepted Answer

A)  Because the government can ignore creditors and refuse payment. 
B)  Because the government, as a dictatorship, is unresponsive to demands for repayment. 
C)  Because the government has no debt, it owes it to itself. 
D)  Because the government does not have a finite life, as do individuals. 
A)  Because the government can ignore creditors and refuse payment. 
B)  Because the government, as a dictatorship, is unresponsive to demands for repayment. 
C)  Because the government has no debt, it owes it to itself. 
D)  Because the government does not have a finite life, as do individuals.

Question 13

Until about 1983, almost all of the U.S.national debt stemmed from

Accepted Answer

A)  financing wars. 
B)  bank failures. 
C)  development assistance programs. 
D)  tax cuts. 
A)  financing wars. 
B)  bank failures. 
C)  development assistance programs. 
D)  tax cuts.

Question 14

Future generations will be hurt by a high national debt if incurring the debt

Accepted Answer

A)  was done to pay Social Security recipients. 
B)  resulted in heavy commitments to bail out business firms. 
C)  increased formation of capital. 
D)  slowed the formation of capital. 
A)  was done to pay Social Security recipients. 
B)  resulted in heavy commitments to bail out business firms. 
C)  increased formation of capital. 
D)  slowed the formation of capital.

Question 15

The crowding-out effect of higher interest rates can be avoided by

Accepted Answer

A)  expansionary monetary policy. 
B)  expansionary fiscal policy. 
C)  contractionary monetary policy. 
D)  decreasing taxes. 
A)  expansionary monetary policy. 
B)  expansionary fiscal policy. 
C)  contractionary monetary policy. 
D)  decreasing taxes.

Question 16

If the national debt is owed to foreigners,

Accepted Answer

A)  the debt constitutes a burden to domestic citizens. 
B)  economic growth will necessarily be higher than if the debt were owed to domestic citizens. 
C)  paying off the debt will involve a transfer of resources within the country. 
D)  future interest payments on the debt are not a burden to the nation. 
A)  the debt constitutes a burden to domestic citizens. 
B)  economic growth will necessarily be higher than if the debt were owed to domestic citizens. 
C)  paying off the debt will involve a transfer of resources within the country. 
D)  future interest payments on the debt are not a burden to the nation.

Question 17

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 18

In comparing the changes in actual budget surplus and the structural surplus between 1993 and 1999, it is clear that the

Accepted Answer

A)  actual surplus rose less than the structural surplus. 
B)  actual surplus and the structural surplus rose about the same. 
C)  actual surplus rose much more than the structural surplus. 
D)  tax increases of 1993 decreased the structural surplus more than they decreased the actual surplus. 
A)  actual surplus rose less than the structural surplus. 
B)  actual surplus and the structural surplus rose about the same. 
C)  actual surplus rose much more than the structural surplus. 
D)  tax increases of 1993 decreased the structural surplus more than they decreased the actual surplus.

Question 19

Why do economists view structural budget deficit as a good measure of the direction of the fiscal policy?

Accepted Answer

Because it is based on the spending and

Question 20

Figure 16-1
  
-In Figure 16-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.At which level of income is the actual deficit the greatest?

Accepted Answer

A)  Y₄ 
B)  Y₃ 
C)  Y₂ 
D)  Y₁ 
A)  Y₄ 
B)  Y₃ 
C)  Y₂ 
D)  Y₁

Exam 33: Budget Deficits in the Short and Long Run

Like many families, the national debt in 2010 was many times larger than the national income.

If the U.S.government decided to pay off the national debt by creating money, what would be the most likely effect?

Proponents of deficit reduction argue that the principal effect will be an

Is the national debt a burden to future generations?

Deficits are created by governments running a large debt.

The deficit can be defined in simple terms as

At the end of 2010, the net national debt per person in the United States was approximately

Conventional budget accounting practices tend to overstate deficits in inflationary periods because they

Which of the following is true regarding the effect of deficits from 1980-2005 in the U.S.?

Figure 16-1 -In Figure 16-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.Y₃ is the full-employment level of income.At Y₃

If the President and Congress agree to balance the budget during a recession, then the appropriate monetary policy is

Why does the government not have to repay debt, as do private individuals?

Until about 1983, almost all of the U.S.national debt stemmed from

Future generations will be hurt by a high national debt if incurring the debt

The crowding-out effect of higher interest rates can be avoided by

If the national debt is owed to foreigners,

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

In comparing the changes in actual budget surplus and the structural surplus between 1993 and 1999, it is clear that the

Why do economists view structural budget deficit as a good measure of the direction of the fiscal policy?

Figure 16-1 -In Figure 16-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.At which level of income is the actual deficit the greatest?

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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