Question 1

A budget deficit will be least inflationary if the aggregate

Accepted Answer

A)  demand curve is very steep. 
B)  demand curve is very flat. 
C)  supply curve is very flat. 
D)  supply curve is very steep. 
A)  demand curve is very steep. 
B)  demand curve is very flat. 
C)  supply curve is very flat. 
D)  supply curve is very steep.

Question 2

Figure 32-1
 
In Figure 32-1, 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 3

Because the personal income tax is an automatic stabilizer,

Accepted Answer

A)  inflationary gaps are impossible. 
B)  the budget deficit grows during a recession. 
C)  the deficit needed to cure a recessionary gap increases. 
D)  the structural deficit grows during a recession. 
E)  all of the above are correct. 
A)  inflationary gaps are impossible. 
B)  the budget deficit grows during a recession. 
C)  the deficit needed to cure a recessionary gap increases. 
D)  the structural deficit grows during a recession. 
E)  all of the above are correct.

Question 4

Deficit is the difference between government expenditures, which are either purchases or transfer payments and tax receipts.

Accepted Answer

A) True 
 B)False

Question 5

Large deficits can retard economic growth.

Accepted Answer

A) True 
 B)False

Question 6

Budget deficit is the amount by which the government's expenditures exceed its receipts during a specified period of time, usually a year.

Accepted Answer

A) True 
 B)False

Question 7

Until the 1980s, most of the national debt was

Accepted Answer

A)  owned by foreigners. 
B)  acquired either during wars, especially World War II, or during recessions. 
C)  owned by banks. 
D)  financed by printing money. 
A)  owned by foreigners. 
B)  acquired either during wars, especially World War II, or during recessions. 
C)  owned by banks. 
D)  financed by printing money.

Question 8

If a budget deficit increases interest rates, it is possible that investment will

Accepted Answer

A)  fall, leading to a larger capital stock. 
B)  fall, so that there is a smaller capital stock. 
C)  rise, because investment is directly related to interest rates. 
D)  rise, because investment is more attractive when interest rates are higher. 
A)  fall, leading to a larger capital stock. 
B)  fall, so that there is a smaller capital stock. 
C)  rise, because investment is directly related to interest rates. 
D)  rise, because investment is more attractive when interest rates are higher.

Question 9

Under a balanced budget policy, a sharp rise in GDP will cause

Accepted Answer

A)  no serious budget changes. 
B)  a tax cut or an increase in expenditures. 
C)  a tax increase or expenditure cut. 
D)  tax receipts to exceed government expenditures. 
A)  no serious budget changes. 
B)  a tax cut or an increase in expenditures. 
C)  a tax increase or expenditure cut. 
D)  tax receipts to exceed government expenditures.

Question 10

The net national debt is smaller than the gross national debt because

Accepted Answer

A)  some debt is held by foreigners. 
B)  some debt is held by U.S. citizens. 
C)  some debt is held by government agencies. 
D)  the government does not have to pay all of the debt. 
A)  some debt is held by foreigners. 
B)  some debt is held by U.S. citizens. 
C)  some debt is held by government agencies. 
D)  the government does not have to pay all of the debt.

Question 11

As GDP falls, automatic stabilizers run the federal budget in a deficit direction.

Accepted Answer

A) True 
 B)False

Question 12

Argentina in 2001 faced a debt problem more serious than the U.S. debt problem because Argentina was obligated to repay its debt in

Accepted Answer

A)  U.S. dollars. 
B)  their own currencies. 
C)  a relatively short period of time. 
D)  large installments. 
A)  U.S. dollars. 
B)  their own currencies. 
C)  a relatively short period of time. 
D)  large installments.

Question 13

Suppose that the economy is currently at full employment. All other things being equal, if the government implements expansionary fiscal policy, 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 14

Under a balanced budget policy, a sharp decline in GDP will cause

Accepted Answer

A)  no serious budget changes. 
B)  a tax cut or an increase in expenditures. 
C)  a tax increase or expenditure cut. 
D)  tax receipts to exceed government expenditures. 
A)  no serious budget changes. 
B)  a tax cut or an increase in expenditures. 
C)  a tax increase or expenditure cut. 
D)  tax receipts to exceed government expenditures.

Question 15

Why do economists think that the structural deficit is a good measure of the direction of fiscal policy?

Accepted Answer

A)  Because it adjusts over the business cycle and reflects the fiscal stimulus of policy. 
B)  Because it changes when policy changes, rather than when the economy changes. 
C)  Because it changes when monetary policy changes, reflecting the interest rate cost of debt. 
D)  Because it adjusts automatically, rather than requiring specific legislation. 
A)  Because it adjusts over the business cycle and reflects the fiscal stimulus of policy. 
B)  Because it changes when policy changes, rather than when the economy changes. 
C)  Because it changes when monetary policy changes, reflecting the interest rate cost of debt. 
D)  Because it adjusts automatically, rather than requiring specific legislation.

A budget deficit will be least inflationary if the aggregate

Figure 32-1 In Figure 32-1, 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

Because the personal income tax is an automatic stabilizer,

Deficit is the difference between government expenditures, which are either purchases or transfer payments and tax receipts.

Large deficits can retard economic growth.

Budget deficit is the amount by which the government's expenditures exceed its receipts during a specified period of time, usually a year.

Until the 1980s, most of the national debt was

If a budget deficit increases interest rates, it is possible that investment will

Under a balanced budget policy, a sharp rise in GDP will cause

The net national debt is smaller than the gross national debt because

As GDP falls, automatic stabilizers run the federal budget in a deficit direction.

Argentina in 2001 faced a debt problem more serious than the U.S. debt problem because Argentina was obligated to repay its debt in

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

Under a balanced budget policy, a sharp decline in GDP will cause

Why do economists think that the structural deficit is a good measure of the direction of fiscal policy?

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

Filters

Exam 32: Budget Deficits in the Short and Long Run

A budget deficit will be least inflationary if the aggregate

Figure 32-1 In Figure 32-1, 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

Because the personal income tax is an automatic stabilizer,

Deficit is the difference between government expenditures, which are either purchases or transfer payments and tax receipts.

Large deficits can retard economic growth.

Budget deficit is the amount by which the government's expenditures exceed its receipts during a specified period of time, usually a year.

Until the 1980s, most of the national debt was

If a budget deficit increases interest rates, it is possible that investment will

Under a balanced budget policy, a sharp rise in GDP will cause

The net national debt is smaller than the gross national debt because

As GDP falls, automatic stabilizers run the federal budget in a deficit direction.

Argentina in 2001 faced a debt problem more serious than the U.S. debt problem because Argentina was obligated to repay its debt in

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

Under a balanced budget policy, a sharp decline in GDP will cause

Why do economists think that the structural deficit is a good measure of the direction of fiscal policy?

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

Filters

Figure 32-1 In Figure 32-1, 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