Exam 31: Government Debt and Deficits

The diagram below is for a closed economy which begins in long-run equilibrium at Y* and . FIGURE 31-3 -Refer to Figure 31-3.Suppose the government in this closed economy implements an expansionary fiscal policy,which increases the budget deficit.When the economy reaches its new long-run equilibrium,how has the composition of national income changed?

Suppose the real interest rate on government bonds is 5% while the growth rate of real GDP is 4%,and that the government's current debt-to-GDP ratio is 30%.If the government has a primary budget balance of zero in the current year,the debt-to-GDP ratio will

The budget deficit function is graphed with the budget deficit on the vertical axis and ________ on the horizontal axis,and is ________.

Implementation of cyclically balanced government budgets

The federal government's "primary budget deficit"

Until the onset of the most recent recession in 2009,Canadian governments (federal and provincial)had been running budget surpluses for about 10 years.Economic theory suggests that,other things being equal,these budget surpluses will lead to

The table below shows government purchases (G),net tax revenues (T),and debt-service payments (iD)over a 4-year period for a hypothetical economy.All figures are in billions of dollars.Assume the stock of debt at the end of 2012 is $500 billion. TABLE 31-1 -Refer to Table 31.1.What is the stock of debt at the end of 2013?

The stock of government debt will continue to rise unless the government

Suppose the government decided to ensure that its structural budget deficit was always zero.This policy would be problematic because

In general,the government will have ________ flexibility in implementing counter-cyclical fiscal policy when the outstanding stock of government debt is ________ relative to the size of GDP.

The government's structural budget deficit adjusts for

Consider a closed-economy AD/AS macro model.A policy-induced increase in the government's budget deficit is most likely to crowd-out private investment if

The diagram below shows two budget deficit functions for a hypothetical economy. FIGURE 31-2 -Refer to Figure 31-2.Initially,suppose the economy is at point A on budget deficit function .Real GDP (Y)is $100 million.If the level of potential output (Y*)were $300 million,how much of the actual budget deficit is due to the underlying structure of fiscal policy and is therefore independent of the current level of GDP?

Consider the government's budget deficit function.Other things being equal,an autonomous increase in government purchases causes ________ the budget deficit function.

The data below provides the Actual and Structural Budget Deficits,as a percentage of real GDP,for Canada between 1999 and 2010.Note that a negative value in the table indicates a budget surplus. TABLE 31-2 -Refer to Table 31-2.Based on the data in the table,over which of the following intervals was fiscal policy expansionary?

Suppose the government's debt-to-GDP ratio on January 1 of Year 1 is 32%.The change in the debt-to-GDP ratio during Year 1 is -0.037.On January 1 of Year 2 the government's debt-to-GDP ratio is

Suppose the stock of government debt in Canada at the end of one fiscal year is $475 billion.If the stock of debt falls to $461 billion by the end of the next fiscal year,then we know that in that year

Consider a government with a positive stock of debt.If the growth rate of real GDP exceeds the real rate of interest on government bonds,then to keep the debt-to-GDP ratio constant the

The Canadian tax and transfer system acts as an automatic stabilizer because

Most economists believe that balancing the government budget over the business cycle,rather than for each fiscal year,