Question 1

If the Ricardian equivalence proposition is correct,then

Accepted Answer

A) deficits harm future generations. 
B) deficits reduce investment spending. 
C) deficits stimulate the economy in the short run. 
D) all of the above 
E)  none of the above 
A) deficits harm future generations. 
B) deficits reduce investment spending. 
C) deficits stimulate the economy in the short run. 
D) all of the above 
E)  none of the above

Question 2

Which of the following represents debt monetization?

Accepted Answer

A) an increase in the budget deficit that is financed by money creation 
B) an increase in the budget deficit that is financed by foreigner investors' purchases of domestic bonds 
C) an increase in the budget deficit that coincides with a central bank sale of bonds 
D) an open market purchase of bonds that results in inflation 
E)  none of the above 
A) an increase in the budget deficit that is financed by money creation 
B) an increase in the budget deficit that is financed by foreigner investors' purchases of domestic bonds 
C) an increase in the budget deficit that coincides with a central bank sale of bonds 
D) an open market purchase of bonds that results in inflation 
E)  none of the above

Question 3

Suppose the central bank increases the rate of growth of the money supply.What effect will this increase in money growth have on seignorage in: (1)the short run; and (2)the medium run? Explain.

Accepted Answer

Seignorage equals the rate of growth of

Question 4

To reduce distortions in the economy,it is probably better to finance temporary large government spending with

Accepted Answer

A) deficits. 
B) taxes. 
C) exports. 
D) all of the above 
E)  none of the above 
A) deficits. 
B) taxes. 
C) exports. 
D) all of the above 
E)  none of the above

Question 5

All else equal,a rise in the debt-to-GDP ratio implies

Accepted Answer

A) a greater ratio of interest payments to GDP. 
B) a greater difference between the official and correct measures of the deficit as a fraction of GDP. 
C) a greater surplus is needed to prevent further rises in the debt-to-GDP ratio. 
D) all of the above 
E)  none of the above 
A) a greater ratio of interest payments to GDP. 
B) a greater difference between the official and correct measures of the deficit as a fraction of GDP. 
C) a greater surplus is needed to prevent further rises in the debt-to-GDP ratio. 
D) all of the above 
E)  none of the above

Question 6

Explain what is meant by automatic stabilizers and how they work to minimize fluctuations in economic activity.

Accepted Answer

Automatic stabilizers refer to the effec

Question 7

Explain "haircuts" when a government defaults its debt.

Accepted Answer

Default is often partial and c

Question 8

Which of the following will cause a reduction in the debt-to-GDP ratio?

Accepted Answer

A) an increase in the real interest rate 
B) an increase in the ratio of the primary deficit to GDP 
C) an increase in the growth rate of output 
D) all of the above 
A) an increase in the real interest rate 
B) an increase in the ratio of the primary deficit to GDP 
C) an increase in the growth rate of output 
D) all of the above

Question 9

Under what conditions will the official measure of the budget deficit be greater than,less than,or equal to the correct measure of the budget deficit.

Accepted Answer

The official measure of the deficit is:

Question 10

Which of the following would increase the cyclically adjusted deficit?

Accepted Answer

A) an increase in income. 
B) a decrease in income. 
C) an increase in the primary deficit. 
D) a decrease in the primary deficit. 
E)  none of the above 
A) an increase in income. 
B) a decrease in income. 
C) an increase in the primary deficit. 
D) a decrease in the primary deficit. 
E)  none of the above

Question 11

When the budget deficit is financed entirely through money creation,the real budget deficit is equal to which of the following?

Accepted Answer

A) ΔH 
B) ΔH - ΔP 
C) (ΔH)/ P 
D) (ΔH)/ H 
E)  P[(ΔH) / H] 
A) ΔH 
B) ΔH - ΔP 
C) (ΔH)/ P 
D) (ΔH)/ H 
E)  P[(ΔH) / H]

Question 12

Suppose the Ricardian Equivalence proposition holds (i.e.,it is correct).What does this imply about the ability of fiscal policy to affect GDP? Explain.

Accepted Answer

The Ricardian Equivalence proposition de

Question 13

Explain seignorage.

Accepted Answer

The real revenue from money cr

Question 14

Which of the following would decrease the cyclically adjusted deficit?

Accepted Answer

A) an increase in income 
B) a decrease in income 
C) an increase in the primary deficit 
D) a decrease in the primary deficit 
E)  none of the above 
A) an increase in income 
B) a decrease in income 
C) an increase in the primary deficit 
D) a decrease in the primary deficit 
E)  none of the above

Question 15

The official measure of the deficit

Accepted Answer

A) always underestimates the correct measure of the deficit when inflation is positive. 
B) differs from the correct measure by the inflation rate times taxes. 
C) depends on the nominal interest rate. 
D) depends on the real interest rate. 
E)  none of the above 
A) always underestimates the correct measure of the deficit when inflation is positive. 
B) differs from the correct measure by the inflation rate times taxes. 
C) depends on the nominal interest rate. 
D) depends on the real interest rate. 
E)  none of the above

Question 16

During most episodes of hyperinflation,

Accepted Answer

A) the inflation rate is high but constant. 
B) the inflation rate decreases over time. 
C) the inflation rate increases over time. 
D) the inflation rate first increases, and then remains constant. 
E)  the inflation rate increases over time, but then rapidly decreases on its own. 
A) the inflation rate is high but constant. 
B) the inflation rate decreases over time. 
C) the inflation rate increases over time. 
D) the inflation rate first increases, and then remains constant. 
E)  the inflation rate increases over time, but then rapidly decreases on its own.

Question 17

The debt-to-GDP ratio is higher,

Accepted Answer

A) the lower the real interest rate. 
B) the lower is the ratio of the primary deficit to GDP. 
C) the higher is the growth rate of output. 
D) all of the above 
E)  none of the above 
A) the lower the real interest rate. 
B) the lower is the ratio of the primary deficit to GDP. 
C) the higher is the growth rate of output. 
D) all of the above 
E)  none of the above

Question 18

Using taxes to finance a war,rather than deficits,

Accepted Answer

A) leads to a greater future capital stock. 
B) is generally not proposed by economists. 
C) shares less of the burden of the war with future generations. 
D) all of the above 
E)  none of the above 
A) leads to a greater future capital stock. 
B) is generally not proposed by economists. 
C) shares less of the burden of the war with future generations. 
D) all of the above 
E)  none of the above

Question 19

Explain what can occur to cause an increase in the debt ratio.

Accepted Answer

The debt ratio is simply the ratio of th

Question 20

In 2010,the deficit-to-GDP ratio for the United States was approximately equal to

Accepted Answer

A) 10%. 
B) 17%. 
C) 37%. 
D) 67%. 
A) 10%. 
B) 17%. 
C) 37%. 
D) 67%.

Exam 22: Fiscal Policy: a Summing up

If the Ricardian equivalence proposition is correct,then

Which of the following represents debt monetization?

Suppose the central bank increases the rate of growth of the money supply.What effect will this increase in money growth have on seignorage in: (1)the short run; and (2)the medium run? Explain.

To reduce distortions in the economy,it is probably better to finance temporary large government spending with

All else equal,a rise in the debt-to-GDP ratio implies

Explain what is meant by automatic stabilizers and how they work to minimize fluctuations in economic activity.

Explain "haircuts" when a government defaults its debt.

Which of the following will cause a reduction in the debt-to-GDP ratio?

Under what conditions will the official measure of the budget deficit be greater than,less than,or equal to the correct measure of the budget deficit.

Which of the following would increase the cyclically adjusted deficit?

When the budget deficit is financed entirely through money creation,the real budget deficit is equal to which of the following?

Suppose the Ricardian Equivalence proposition holds (i.e.,it is correct).What does this imply about the ability of fiscal policy to affect GDP? Explain.

Explain seignorage.

Which of the following would decrease the cyclically adjusted deficit?

The official measure of the deficit

During most episodes of hyperinflation,

The debt-to-GDP ratio is higher,

Using taxes to finance a war,rather than deficits,

Explain what can occur to cause an increase in the debt ratio.

In 2010,the deficit-to-GDP ratio for the United States was approximately equal to

A Tour of the World

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Marketsthe Is-Lm Model

Financial Markets Ii: the Extended Is-Lm Model

The Labor Market

The Phillips Curve, the Natural Rate of Unemployment, and Inflation

From the Short to the Medium Run: the Is-Lm-Pc Model

The Facts of Growth

Saving, capital Accumulation, and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium, and the Long Run

Financial Markets and Expectations

Expectations, consumption, and Investment

Expectations, output, and Policy

Openness in Goods and Financial Markets

The Goods Market in an Open Economy

Output, the Interest Rate, and the Exchange Rate

Exchange Rate Regimes

Should Policy Makers Be Restrained

Monetary Policy: a Summing up

Epilogue: the Story of Macroeconomics

Appendix

Filters