Exam 19: Government Debt and Budget Deficits

Capital budgeting is a procedure that:

An increase in the elderly population of a country affects fiscal policy most directly because:

Tax smoothing is a desirable policy because it:

Graphically illustrate the traditional view of the short-run impacts of a debt-financed tax cut on: a. interest rates and output in a closed economy in the short run, using the $L S - L M$ model. b. exchange rates and output in a small open economy with a flexible exchange rate in the short tun, using the Mundell-Fleming model.

Assume an economy with zero interest and inflation rates. Also assume that the theory of Ricardian equivalence is correct, i.e. people are rational and practice foresight. How will people's consumption pattern change if the current tax system is replaced with a lifetime one-time tax?

Government tax policy can affect aggregate supply as well as aggregate demand, because changes in taxes change the:

Assume that nobody cares about the economic well-being of future generations. Then the Ricardian equivalence view of the effect of debt-financed tax cuts is:

Under capital budgeting, all of the following transactions would affect the federal budget deficit except the federal government's:

In response to a tax cut, the consumption of a consumer who is borrowing-constrained ______, whereas the consumption of a forward-looking, unconstrained consumer acting in accord with Ricardian equivalence ______.

Proponents of Ricardian equivalence argue that if taxes are cut without cutting government spending and taxes are not expected to increase in the future until after an individual expects to be dead, then the individual will:

Spending more than earning will always cause a deficit in the budget and is always considered a bad thing. Is there a possibility that a budget deficit in any economy can have some advantages, too? Give two examples of these advantages, if any.

A strict balanced-budget rule would:

Assume that the nominal interest rate is 11 percent, the inflation rate is 8 percent, and government debt at the beginning of the year equals $4 trillion. By how much is the government budget deficit overstated as a result of inflation?

Historically, the primary cause of increases in government debt is:

If government debt is not changing, then:

The logic of Ricardian equivalence implies that:

According to the traditional view of government debt (as in the IS-LM model), if taxes are cut without cutting government spending, then in the short run interest rates will ______ and investment will ______.

Each of the following changes would allow the measured budget deficit to provide a truer picture of fiscal policy except:

To force politicians to judge whether government spending is worth the costs, some economists have argued for:

Assume that a government has a balanced budget when the economy is at full employment. If the economy then enters a recession, with no change in tax or spending laws, then the budget of the government is most likely to: