Question 1

If the national debt is owned by domestic citizens,

Accepted Answer

A)  the debt will not have to be repaid. 
B)  future interest payments transfer funds from one group of Americans to another. 
C)  the debt will have to be repaid first to domestic creditors, then to foreign creditors. 
D)  future interest payments will go to pay foreign debt first, then debt owed to American citizens. 
A)  the debt will not have to be repaid. 
B)  future interest payments transfer funds from one group of Americans to another. 
C)  the debt will have to be repaid first to domestic creditors, then to foreign creditors. 
D)  future interest payments will go to pay foreign debt first, then debt owed to American citizens.

Question 2

In the short run, and especially when unemployment is high, crowding in is the stronger force. The short-run effects of government's financial rescue program and fiscal stimulus package helped the economy increase aggregate demand curing the Great Recession.

Accepted Answer

A) True 
 B)False

Question 3

The federal budget went $161 billion in fiscal year 2007 to $1 trillion in the next two to three years. What are the main factors that contributed to this increase?

Accepted Answer

Three main factors contributed to this i

Question 4

Restrictive fiscal policies pull interest rates down.

Accepted Answer

A) True 
 B)False

Question 5

National debt is also known as

Accepted Answer

A)  private debt. 
B)  public debt. 
C)  private saving. 
D)  public saving. 
A)  private debt. 
B)  public debt. 
C)  private saving. 
D)  public saving.

Question 6

If in fiscal year 2015, the federal government receives $2.2 trillion in revenues and spends $3.5 trillion for goods and services, the national debt will

Accepted Answer

A)  increase by $2.2 trillion. 
B)  increase by $1.3 trillion. 
C)  decrease by $1.3 trillion. 
D)  decrease by $2.2 trillion. 
A)  increase by $2.2 trillion. 
B)  increase by $1.3 trillion. 
C)  decrease by $1.3 trillion. 
D)  decrease by $2.2 trillion.

Question 7

"Budget deficits are inflationary." The truth of this statement depends on

Accepted Answer

A)  aggregate demand in the economy. 
B)  the shape of the aggregate supply curve. 
C)  the size of the national debt. 
D)  existing debt as a percentage of GDP. 
A)  aggregate demand in the economy. 
B)  the shape of the aggregate supply curve. 
C)  the size of the national debt. 
D)  existing debt as a percentage of GDP.

Question 8

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 9

Differentiate between "off-budget" deficit and the "on-budget" deficit.

Accepted Answer

Social Security expenditures and the pay

Question 10

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.

Question 11

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 12

The appropriate fiscal policy stance depends, at least partly, on the

Accepted Answer

A)  stance of trade policy. 
B)  stance of monetary policy. 
C)  party in power in Congress. 
D)  party in power in the presidency. 
A)  stance of trade policy. 
B)  stance of monetary policy. 
C)  party in power in Congress. 
D)  party in power in the presidency.

Question 13

Budget deficits are inflationary when

Accepted Answer

A)  the Federal Reserve contracts the money supply. 
B)  the economy has lots of slack and the aggregate supply curve is horizontal. 
C)  the economy is at full employment and the aggregate supply curve is vertical. 
D)  private citizens buy the bonds to finance the debt. 
A)  the Federal Reserve contracts the money supply. 
B)  the economy has lots of slack and the aggregate supply curve is horizontal. 
C)  the economy is at full employment and the aggregate supply curve is vertical. 
D)  private citizens buy the bonds to finance the debt.

Question 14

If the economy is near full employment and Congress cuts taxes, the proper monetary policy should be

Accepted Answer

A)  expansionary to keep the economy fully employed. 
B)  expansionary to counteract the increased deficit. 
C)  contractionary to shift the aggregate demand curve outward. 
D)  contractionary to counteract the effects of fiscal policy. 
A)  expansionary to keep the economy fully employed. 
B)  expansionary to counteract the increased deficit. 
C)  contractionary to shift the aggregate demand curve outward. 
D)  contractionary to counteract the effects of fiscal policy.

Question 15

Figure 32-3
 
Figure 32-3 shows the impact of deficit spending and the corresponding economic expansion on the demand curve for money. If the Federal Reserve does not want interest rates to rise, it will

Accepted Answer

A)  shift the money supply curve to the right by monetizing the deficit. 
B)  shift the money supply curve to the left by open-market sales of government securities. 
C)  maintain the current targets for both M1 and M2 money stocks. 
D)  engage in contractionary monetary policy, such as increases in the discount rate. 
A)  shift the money supply curve to the right by monetizing the deficit. 
B)  shift the money supply curve to the left by open-market sales of government securities. 
C)  maintain the current targets for both M1 and M2 money stocks. 
D)  engage in contractionary monetary policy, such as increases in the discount rate.

Question 16

Crowding out occurs when

Accepted Answer

A)  increased taxes force higher levels of national saving. 
B)  deficit spending by the government forces private investment spending to contract. 
C)  local businesses cannot get government contracts because of the higher bids of large corporations. 
D)  foreign investors are willing to pay higher prices for U.S. bonds than American citizens will pay. 
A)  increased taxes force higher levels of national saving. 
B)  deficit spending by the government forces private investment spending to contract. 
C)  local businesses cannot get government contracts because of the higher bids of large corporations. 
D)  foreign investors are willing to pay higher prices for U.S. bonds than American citizens will pay.

Question 17

The decisions on the part of the government to increase spending by $5 billion will have the largest impact on aggregate demand when the spending is financed by the sale of bonds to

Accepted Answer

A)  the member banks. 
B)  the public. 
C)  the Fed. 
D)  foreigners. 
A)  the member banks. 
B)  the public. 
C)  the Fed. 
D)  foreigners.

Question 18

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 19

If national debt is owned by domestic citizens, future interest payments just transfer funds from one group of Americans to another.

Accepted Answer

A) True 
 B)False

Question 20

A mathematical formula for the deficit would be

Accepted Answer

A)  C + I + G − transfers + taxes. 
B)  C + I + G + transfers - taxes. 
C)  I + G + transfers - taxes. 
D)  G + transfers - taxes. 
A)  C + I + G − transfers + taxes. 
B)  C + I + G + transfers - taxes. 
C)  I + G + transfers - taxes. 
D)  G + transfers - taxes.

Exam 32: Budget Deficits in the Short and Long Run

If the national debt is owned by domestic citizens,

In the short run, and especially when unemployment is high, crowding in is the stronger force. The short-run effects of government's financial rescue program and fiscal stimulus package helped the economy increase aggregate demand curing the Great Recession.

The federal budget went $161 billion in fiscal year 2007 to $1 trillion in the next two to three years. What are the main factors that contributed to this increase?

Restrictive fiscal policies pull interest rates down.

National debt is also known as

If in fiscal year 2015, the federal government receives $2.2 trillion in revenues and spends $3.5 trillion for goods and services, the national debt will

"Budget deficits are inflationary." The truth of this statement depends on

By 2007, the deficit

Differentiate between "off-budget" deficit and the "on-budget" deficit.

Deficit is to debt as

The deficit can be defined in simple terms as

The appropriate fiscal policy stance depends, at least partly, on the

Budget deficits are inflationary when

If the economy is near full employment and Congress cuts taxes, the proper monetary policy should be

Figure 32-3 Figure 32-3 shows the impact of deficit spending and the corresponding economic expansion on the demand curve for money. If the Federal Reserve does not want interest rates to rise, it will

Crowding out occurs when

The decisions on the part of the government to increase spending by $5 billion will have the largest impact on aggregate demand when the spending is financed by the sale of bonds to

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

If national debt is owned by domestic citizens, future interest payments just transfer funds from one group of Americans to another.

A mathematical formula for the deficit would be

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

Contemporary Issues in the Us Economy

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