Question 1

Restrictive fiscal policies

Accepted Answer

A)  pull interest rates down. 
B)  push interest rates up. 
C)  have no impact on interest rates. 
D)  none of these. 
A)  pull interest rates down. 
B)  push interest rates up. 
C)  have no impact on interest rates. 
D)  none of these.

Question 2

If the Fed decides to keep interest rates low when there is a large budget deficit, economists conclude that the Fed is

Accepted Answer

A)  monetizing the debt. 
B)  neutralizing the effects of the deficit. 
C)  correcting the deficit for inflation. 
D)  resisting the effects of the deficit. 
A)  monetizing the debt. 
B)  neutralizing the effects of the deficit. 
C)  correcting the deficit for inflation. 
D)  resisting the effects of the deficit.

Question 3

The statement that "repaying our enormous national debt will ruin the nation" is

Accepted Answer

A)  true, because taxes will have to go up by such large amounts that American citizens will have very little income to live on. 
B)  true, because most of our national debt is owed to foreigners. 
C)  false, because the government will take emergency measures to prevent national bankruptcy. 
D)  false, because each time the principal on the debt comes due, the U.S. Treasury rolls it over by issuing more debt. 
A)  true, because taxes will have to go up by such large amounts that American citizens will have very little income to live on. 
B)  true, because most of our national debt is owed to foreigners. 
C)  false, because the government will take emergency measures to prevent national bankruptcy. 
D)  false, because each time the principal on the debt comes due, the U.S. Treasury rolls it over by issuing more debt.

Question 4

The primary conclusion of using inflation accounting is that inflation

Accepted Answer

A)  distorts the tax system and results in slower economic growth. 
B)  reduces the national debt to its nominal value instead of its real value. 
C)  causes recessions and increases the structural deficit. 
D)  distorts government budget accounting by exaggerating interest expense. 
A)  distorts the tax system and results in slower economic growth. 
B)  reduces the national debt to its nominal value instead of its real value. 
C)  causes recessions and increases the structural deficit. 
D)  distorts government budget accounting by exaggerating interest expense.

Question 5

When will the difference between the actual deficit and the structural deficit be the smallest?

Accepted Answer

A)  In a major recession 
B)  At full employment 
C)  In an inflationary gap 
A)  In a major recession 
B)  At full employment 
C)  In an inflationary gap

Question 6

The crowding-in effect depends on the fact that often a decrease in taxes causes a(n)

Accepted Answer

A)  decrease in interest rates and an increase in the price of existing bonds. 
B)  increase in output, which induces more investment. 
C)  increase in interest rates and a decrease in the price of existing bonds. 
D)  decrease in interest rates and the price of existing bonds. 
A)  decrease in interest rates and an increase in the price of existing bonds. 
B)  increase in output, which induces more investment. 
C)  increase in interest rates and a decrease in the price of existing bonds. 
D)  decrease in interest rates and the price of existing bonds.

Question 7

With no change in fiscal policy, the budget

Accepted Answer

A)  will run a surplus during a recession and a deficit during a boom. 
B)  deficit will rise during a recession and fall during a boom. 
C)  deficit will fall during a recession and rise during a boom. 
D)  will remain unchanged by adverse economic conditions. 
A)  will run a surplus during a recession and a deficit during a boom. 
B)  deficit will rise during a recession and fall during a boom. 
C)  deficit will fall during a recession and rise during a boom. 
D)  will remain unchanged by adverse economic conditions.

Question 8

Japanese Prime Minister Ryutaro Hashimoto was called the "Herbert Hoover of Japan" because he

Accepted Answer

A)  looked like a very distinguished politician. 
B)  advocated vast public works to combat unemployment. 
C)  advocated budget deficit reduction in the midst of a recession. 
D)  advocated easier monetary policy and lower interest rates to combat recession. 
A)  looked like a very distinguished politician. 
B)  advocated vast public works to combat unemployment. 
C)  advocated budget deficit reduction in the midst of a recession. 
D)  advocated easier monetary policy and lower interest rates to combat recession.

Question 9

If the aggregate supply curve has its normal shape, deficit spending will increase

Accepted Answer

A)  both GDP and the price level at about the same rate. 
B)  the price level before it increases real GDP. 
C)  the price level but decrease real GDP. 
D)  real GDP before it increases the price level. 
A)  both GDP and the price level at about the same rate. 
B)  the price level before it increases real GDP. 
C)  the price level but decrease real GDP. 
D)  real GDP before it increases the price level.

Question 10

Define the following terms and explain their importance to the study of macroeconomics. 
a. Structural budget deficit 
b. Monetize the deficit 
c. Crowding out 
d. Inflation accounting 
e. Mix of fiscal and monetary policy

Accepted Answer

a. The structural budget deficit is the

Question 11

Smaller budget deficits and looser monetary policy lead to a larger investment share and faster growth.

Accepted Answer

A) True 
 B)False

Question 12

Crowding in can be defined as

Accepted Answer

A)  an increase in the budget deficit increases demand so that investment increases. 
B)  tax incentives on investment encourage capital formation, an increase in aggregate supply. 
C)  consumption rises in a recovery, which increases demand for investment. 
D)  the budget deficit falls enough to lower interest rates to stimulate investment. 
A)  an increase in the budget deficit increases demand so that investment increases. 
B)  tax incentives on investment encourage capital formation, an increase in aggregate supply. 
C)  consumption rises in a recovery, which increases demand for investment. 
D)  the budget deficit falls enough to lower interest rates to stimulate investment.

Question 13

Monetary policy is not the only type of policy that affects interest rates.

Accepted Answer

A) True 
 B)False

Question 14

A deficit will burden future generations

Accepted Answer

A)  because the obligation to pay it off must be faced sooner or later. 
B)  if it produces higher interest rates when the economy is near full employment. 
C)  because future generations will have to pay taxes to fund the interest payments to Americans who hold the debt. 
D)  All of the above are correct. 
A)  because the obligation to pay it off must be faced sooner or later. 
B)  if it produces higher interest rates when the economy is near full employment. 
C)  because future generations will have to pay taxes to fund the interest payments to Americans who hold the debt. 
D)  All of the above are correct.

Question 15

In 2009, the Social Security System ran a surplus of approximately $137 billion.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Larger budget deficits and tighter money tend to produce higher interest rates, a smaller share of investment in GDP, and slower growth.

Accepted Answer

A) True 
 B)False

Question 18

At the end of 2014, the net national debt per person in the United States was approximately

Accepted Answer

A)  $14 trillion. 
B)  $142 billion. 
C)  $56,000. 
D)  $86,000. 
A)  $14 trillion. 
B)  $142 billion. 
C)  $56,000. 
D)  $86,000.

Question 19

Deficit rises in a recession and falls in a boom, even with no change in fiscal policy.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 32: Budget Deficits in the Short and Long Run

Restrictive fiscal policies

If the Fed decides to keep interest rates low when there is a large budget deficit, economists conclude that the Fed is

The statement that "repaying our enormous national debt will ruin the nation" is

The primary conclusion of using inflation accounting is that inflation

When will the difference between the actual deficit and the structural deficit be the smallest?

The crowding-in effect depends on the fact that often a decrease in taxes causes a(n)

With no change in fiscal policy, the budget

Japanese Prime Minister Ryutaro Hashimoto was called the "Herbert Hoover of Japan" because he

If the aggregate supply curve has its normal shape, deficit spending will increase

Define the following terms and explain their importance to the study of macroeconomics. a. Structural budget deficit b. Monetize the deficit c. Crowding out d. Inflation accounting e. Mix of fiscal and monetary policy

Smaller budget deficits and looser monetary policy lead to a larger investment share and faster growth.

Crowding in can be defined as

Monetary policy is not the only type of policy that affects interest rates.

A deficit will burden future generations

In 2009, the Social Security System ran a surplus of approximately $137 billion.

Is the national debt a burden to future generations?

Larger budget deficits and tighter money tend to produce higher interest rates, a smaller share of investment in GDP, and slower growth.

At the end of 2014, the net national debt per person in the United States was approximately

Deficit rises in a recession and falls in a boom, even with no change in fiscal policy.

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

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