Exam 19: Government Debt and Budget Deficits

The amount the government would owe if a borrower were to default on a government-guaranteed loan is an example of:

According to the traditional view of government debt (as in the Mundell-Fleming model), if taxes are cut without cutting government spending, then the short-run effects are a(n) ______ of the dollar and a(n) ______ in net exports.

The U.S. Treasury reports the budget deficit or surplus of the federal government. Give at least one reason why the measured budget deficit might overstate the "true" deficit and at least one reason the measured figure might understate the "true" deficit.

The experience of the 1980s:

To minimize the disincentives of very high taxes, a policy of tax smoothing requires a budget ______ in years of unusually low government revenue and a budget ______ in years of unusually high government expenditures.

Explain how tax cuts can affect both aggregate demand and aggregate supply.

If the government levies a one-time temporary tax on the young and gives the proceeds to the elderly, and both generations follow the life-cycle consumption pattern and are altruistically linked:

Financing a budget deficit by ______ leads to inflation, and inflation ______ the real value of government debt.

In the United States, having a balanced budget is currently enforced for:

The strategic bequest motive hypothesizes that parents:

High levels of government debt that raise investors' fear of a government default on debt will result in capital ______ and a(n) ______ of the country's exchange rate.

Printing money increases inflation. The higher the inflation, the lower the real value of debt. So why is this method not used to pay debts?

A deficit adjusted for inflation should include only government spending used to make _____ interest payments.

The amount by which government spending exceeds government revenues is called the ______, and the accumulation of past government borrowing is called the ______.

A debt-financed tax cut will ______ current consumption in the traditional view and ______ current consumption in the view of Ricardian equivalence.

Countries seeking to adopt the euro as their currency must meet certain criteria, including the requirements to keep their government budget deficit equal to 3 percent or less of GDP, and to hold government debt levels below 60 percent of GDP. Discuss why there are fiscal policy criteria for joining a monetary union.

From the Ricardian point of view, a consumer should not raise his or her consumption when taxes are cut but government spending is not cut because:

A country with total debt of $500 million has a nominal interest rate of 10 percent and a real interest rate of 6 percent. Is the budget deficit of the country underestimated or overestimated, and by how much?

Which of the following is the most likely explanation of the August 2011 decision by Standard and Poor's to reduce its credit rating on U.S. government bonds?

Inflation-indexed government bonds have all of the following benefits except: