Question 1

The effect of changes in economic activity on the budget deficit is called

Accepted Answer

A) fine tuning. 
B) debt monetization. 
C) the structural deficit. 
D) tax smoothing. 
E) none of the above 
A) fine tuning. 
B) debt monetization. 
C) the structural deficit. 
D) tax smoothing. 
E) none of the above

Question 2

The correct measure of the deficit is represented by which of the following expressions?

Accepted Answer

A) iB - G + T. 
B) iB + T - G. 
C) rB - G + T. 
D)  (i - π)B + G - T. 
E) none of the above 
A) iB - G + T. 
B) iB + T - G. 
C) rB - G + T. 
D)  (i - π)B + G - T. 
E) none of the above

Question 3

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 4

The Ricardian Equivalence proposition suggests that a tax increase that causes a budget surplus will

Accepted Answer

A) cause an increase in output. 
B) cause no change in output. 
C) cause a reduction in output. 
D) a reduction in consumption. 
A) cause an increase in output. 
B) cause no change in output. 
C) cause a reduction in output. 
D) a reduction in consumption.

Question 5

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 6

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 7

A rule of thumb is that a 1% increase in output leads automatically to a reduction in the deficit of what percentage of GDP?

Accepted Answer

A) 0.5% 
B) 1% 
C) 1.5% 
D) 2% 
A) 0.5% 
B) 1% 
C) 1.5% 
D) 2%

Question 8

If the Ricardian equivalence proposition is correct,then an increase in the deficit will lead to

Accepted Answer

A) an increase in private saving. 
B) a decrease in investment spending. 
C) a lower standard of living in the future. 
D) all of the above 
E) none of the above 
A) an increase in private saving. 
B) a decrease in investment spending. 
C) a lower standard of living in the future. 
D) all of the above 
E) none of the above

Question 9

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 10

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 11

The deficit (as a fraction of GDP)is anticipated to rise over the next several decades due to projections of

Accepted Answer

A) increased defense spending. 
B) increased spending on entitlements. 
C) increased inflation. 
D) decreased corporate tax revenues. 
E) decreased income tax revenues. 
A) increased defense spending. 
B) increased spending on entitlements. 
C) increased inflation. 
D) decreased corporate tax revenues. 
E) decreased income tax revenues.

Question 12

Explain the macroeconomic effects of a tax cut according to the Ricardian Equivalence proposition.Include in your answer the IS-LM graph that shows the effects of this tax cut.

Accepted Answer

The Ricardian Equivalence proposition de

Question 13

The difference between the official and correct measures of the deficit will be greater,

Accepted Answer

A) the lower is government spending. 
B) the lower is the level of debt,B. 
C) the higher is inflation. 
D) none of the above 
A) the lower is government spending. 
B) the lower is the level of debt,B. 
C) the higher is inflation. 
D) none of the above

Question 14

The Ricardian equivalence proposition states that an increase in the deficit causes

Accepted Answer

A) consumption to decrease. 
B) savings to decrease. 
C) investment to decrease. 
D) all of the above 
E) none of the above 
A) consumption to decrease. 
B) savings to decrease. 
C) investment to decrease. 
D) all of the above 
E) none of the above

Question 15

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 16

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 17

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%.

Question 18

In the short run,an increase in government spending that causes an increase in the budget deficit

Accepted Answer

A) affects the level of output but not its composition. 
B) affects both the level and composition of output. 
C) affects only the price level. 
D) is neutral. 
E) none of the above 
A) affects the level of output but not its composition. 
B) affects both the level and composition of output. 
C) affects only the price level. 
D) is neutral. 
E) none of the above

Question 19

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

Accepted Answer

A) 90%. 
B) 17%. 
C) 37%. 
D) 67%. 
A) 90%. 
B) 17%. 
C) 37%. 
D) 67%.

Question 20

"Debt repudiation" occurs when

Accepted Answer

A) a government announces it will no longer run nominal deficits. 
B) a government announces it will no longer run real deficits. 
C) a government announces it will no longer honor its debt obligations. 
D) a central bank will no longer monetize the debt. 
A) a government announces it will no longer run nominal deficits. 
B) a government announces it will no longer run real deficits. 
C) a government announces it will no longer honor its debt obligations. 
D) a central bank will no longer monetize the debt.

Exam 23: Fiscal Policy: a Summing up

The effect of changes in economic activity on the budget deficit is called

The correct measure of the deficit is represented by which of the following expressions?

The official measure of the deficit

The Ricardian Equivalence proposition suggests that a tax increase that causes a budget surplus will

During most episodes of hyperinflation,

If the Ricardian equivalence proposition is correct,then

A rule of thumb is that a 1% increase in output leads automatically to a reduction in the deficit of what percentage of GDP?

If the Ricardian equivalence proposition is correct,then an increase in the deficit will lead to

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

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

The deficit (as a fraction of GDP)is anticipated to rise over the next several decades due to projections of

Explain the macroeconomic effects of a tax cut according to the Ricardian Equivalence proposition.Include in your answer the IS-LM graph that shows the effects of this tax cut.

The difference between the official and correct measures of the deficit will be greater,

The Ricardian equivalence proposition states that an increase in the deficit causes

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

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

In the short run,an increase in government spending that causes an increase in the budget deficit

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

"Debt repudiation" occurs when

A Tour of the World

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Marketsthe Is-Lm Model

The Labor Market

Putting All Markets Togetherthe As-Ad Model

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

The Crisis

The Facts of Growth

Saving,capital Accumulation,and Output

Technological Progress and Growth

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

Expectations: the Basic Tools

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

an Introduction to National Income and Product Accounts

an Introduction to Econometrics

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