Exam 19: Government Debt and Budget Deficits

Suppose a household considers only current income in making consumption decisions. This is an example of:

In 2014, the United States had budget deficit of $483 billion. Some economists say that this deficit is understated. Why do they say this?

According to the traditional viewpoint of government debt, a tax cut without a cut in government spending:

If the debt of the U.S. federal government in 2008 was divided equally among the people in the United States, then the debt per person would equal approximately:

If an individual should subtract the present value of future tax obligations due to the government deficit from his or her disposable income, this situation suggests that, in aggregate analysis, the government deficit should be subtracted from disposable income. That is, instead of C = a + b(Y - T), we should use: C = a + b((Y - T - (G - T)), or = a + b(Y - G). a. Using this consumption function and the further relations: I=I =G =T =C+I+G write the equilibrium equation determining $Y$ as a function of $a , I , G$ , and $T$ . b. If $b$ equals $0.5$ , what are the numerical values of the multipliers for $l , G$ , and $T$ , respectively?

Index bonds have a very low interest rate but still are considered a good option for investment. Why is this so?

Many people are concerned about the budget deficit of the U.S. federal government. Suggest at least three possible negative economic effects of a budget deficit and three possible economic benefits of a budget deficit.

One reason for not requiring a balanced federal budget at all times is that with a balanced-budget rule:

Given a reduction in income tax withheld, but no change in income tax owed, households that act according to Ricardian equivalence would ______ the extra take-home pay, while those facing binding borrowing constraints would ______ the extra-take home pay.

When President George H. W. Bush lowered tax withholding in 1992 without lowering the amount of taxes owed, surveys showed that:

The government budget deficit is the ______, and government debt is the ______.

Cyclically adjusted budgets are useful because they:

Compare the traditional view versus the view of Ricardian equivalence of the effects of a debt-financed tax cut on: a. national saving b. current consumption, and c. the real interest rate.

Measuring the size of government debt is complicated by all of the following factors except:

What is Ricardian equivalence? Give at least three reasons why Ricardian equivalence might not correctly describe an economy.

The debt of the United States government is underreported in the view of many economists because all of the following liabilities are excluded except:

The large increase in U.S. government debt between 1980 and 1995 was unusual because it occurred:

Relative to the size of GDP, the U.S. federal government debt was at its maximum:

The Ricardian view on fiscal policy makes less sense if people are:

The factors most responsible for forecasts of the U.S. government debt spiraling out of control in the next half century are the projected: