Question 1

Which of the following statements is incorrect?

Accepted Answer

A)  Budget deficits raise the national debt. 
B)  The concepts of deficit and debt are closely related. 
C)  Getting rid of the deficit eliminates accumulated debt. 
D)  Budget surpluses lower the national debt. 
A)  Budget deficits raise the national debt. 
B)  The concepts of deficit and debt are closely related. 
C)  Getting rid of the deficit eliminates accumulated debt. 
D)  Budget surpluses lower the national debt.

Question 2

Regarding structural deficits, which of the following assertions is true?

Accepted Answer

A)  The structural deficit depends on the state of the economy. 
B)  The structural deficit is based on actual expenditures and receipts. 
C)  The structural deficit changes only when policy changes. 
D)  The structural deficit changes when GDP changes. 
A)  The structural deficit depends on the state of the economy. 
B)  The structural deficit is based on actual expenditures and receipts. 
C)  The structural deficit changes only when policy changes. 
D)  The structural deficit changes when GDP changes.

Question 3

It is most likely that the federal government will never actually pay off the national debt.

Accepted Answer

A) True 
 B)False

Question 4

Deficit spending boosts aggregate demand.

Accepted Answer

A) True 
 B)False

Question 5

Lately, the ratio of debt to GDP has been

Accepted Answer

A)  rising at a small rate. 
B)  rising steadily. 
C)  falling modestly. 
D)  staying constant. 
A)  rising at a small rate. 
B)  rising steadily. 
C)  falling modestly. 
D)  staying constant.

Question 6

A federal budget deficit places a genuine burden on future generations when the

Accepted Answer

A)  crowding-out effect is stronger than the crowding-in effect. 
B)  crowding-in effect is stronger than the crowding-out effect. 
C)  crowding-out and crowding-in effects work in opposite directions. 
D)  crowding-out and crowding-in effects operate in the same direction. 
A)  crowding-out effect is stronger than the crowding-in effect. 
B)  crowding-in effect is stronger than the crowding-out effect. 
C)  crowding-out and crowding-in effects work in opposite directions. 
D)  crowding-out and crowding-in effects operate in the same direction.

Question 7

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 8

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 9

National debt is the result of previous budget deficits.

Accepted Answer

A) True 
 B)False

Question 10

What is "crowding-in" effect? Explain the factors which determine the strength of the crowding in effect.

Accepted Answer

Crowding-in occurs when government spend

Question 11

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 12

Inflation accounting for the debt argues which of the following?

Accepted Answer

A)  The change in the value of the debt when inflation occurs complicates income tax codes and is the reason for the tax changes of 2003. 
B)  The portion of interest payments that compensate lenders for inflation should be considered repayment of debt rather than interest expense. 
C)  The debt represents an inflationary problem, and grows more rapidly when people fear inflation. 
D)  The portion of the deficit dedicated to repayment of interest on the debt should not be considered part of the deficit, because it is a transfer. 
A)  The change in the value of the debt when inflation occurs complicates income tax codes and is the reason for the tax changes of 2003. 
B)  The portion of interest payments that compensate lenders for inflation should be considered repayment of debt rather than interest expense. 
C)  The debt represents an inflationary problem, and grows more rapidly when people fear inflation. 
D)  The portion of the deficit dedicated to repayment of interest on the debt should not be considered part of the deficit, because it is a transfer.

Question 13

Between the years of 2001 and 2003, what happened to the structural deficit?

Accepted Answer

A)  It declined rapidly. 
B)  It fell steadily. 
C)  It increased steadily. 
D)  It remained fairly constant. 
A)  It declined rapidly. 
B)  It fell steadily. 
C)  It increased steadily. 
D)  It remained fairly constant.

Question 14

What happens typically to a budget deficit during an economic recovery?

Accepted Answer

A)  It decreases because of tax changes. 
B)  It increases because of spending decreases. 
C)  It decreases automatically. 
D)  It increases automatically. 
A)  It decreases because of tax changes. 
B)  It increases because of spending decreases. 
C)  It decreases automatically. 
D)  It increases automatically.

Question 15

The structural deficit is defined as

Accepted Answer

A)  that part of the deficit that is so hard to remove that it is never reduced. 
B)  the portion of the budget deficit that occurs because the economy is not at full employment. 
C)  the hypothetical deficit the economy would have under current fiscal policies if the economy were operating near full employment. 
D)  the actual budget deficit that exists in the economy. 
A)  that part of the deficit that is so hard to remove that it is never reduced. 
B)  the portion of the budget deficit that occurs because the economy is not at full employment. 
C)  the hypothetical deficit the economy would have under current fiscal policies if the economy were operating near full employment. 
D)  the actual budget deficit that exists in the economy.

Question 16

The crowding-out effect is likely to be the strongest during periods of

Accepted Answer

A)  recession. 
B)  large budget surpluses. 
C)  high employment. 
D)  expanding money supply. 
A)  recession. 
B)  large budget surpluses. 
C)  high employment. 
D)  expanding money supply.

Question 17

What does it mean to "monetize the deficit"? Why is it important in discussions of fiscal policy? Use an appropriate diagram to illustrate your answer.

Accepted Answer

If the Fed wishes to keep interest rates

Question 18

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 19

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 20

The U.S. government need never default on its debt because

Accepted Answer

A)  it can easily nationalize banks, who own all the debt, and then owe it to itself. 
B)  it can raise the funds it needs to repay by taxation, and it can print money to repay. 
C)  it owes the debt to itself, and it can always ignore a demand for repayment. 
D)  it can simply reduce spending enough to generate funds to repay its debt. 
A)  it can easily nationalize banks, who own all the debt, and then owe it to itself. 
B)  it can raise the funds it needs to repay by taxation, and it can print money to repay. 
C)  it owes the debt to itself, and it can always ignore a demand for repayment. 
D)  it can simply reduce spending enough to generate funds to repay its debt.

Exam 32: Budget Deficits in the Short and Long Run

Which of the following statements is incorrect?

Regarding structural deficits, which of the following assertions is true?

It is most likely that the federal government will never actually pay off the national debt.

Deficit spending boosts aggregate demand.

Lately, the ratio of debt to GDP has been

A federal budget deficit places a genuine burden on future generations when the

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

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

National debt is the result of previous budget deficits.

What is "crowding-in" effect? Explain the factors which determine the strength of the crowding in effect.

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

Inflation accounting for the debt argues which of the following?

Between the years of 2001 and 2003, what happened to the structural deficit?

What happens typically to a budget deficit during an economic recovery?

The structural deficit is defined as

The crowding-out effect is likely to be the strongest during periods of

What does it mean to "monetize the deficit"? Why is it important in discussions of fiscal policy? Use an appropriate diagram to illustrate your answer.

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

National debt is likely to fall when

The U.S. government need never default on its debt because

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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