Deck 15: Public Debt

Question 1

Ricardian equivalence holds:

A)only for year to year changes in the governments budget.
B)no matter how long until the bonds are to be paid off.
C)only with a government deficit not a surplus.
D)only with a government surplus not a deficit.

Answer 1

no matter how long until the bonds are to be paid off.

Question 2

If government budget is in deficit, then real government saving is in surplus.

Answer 2

True

Question 3

If the government runs a deficit, households will feel wealthier.

Answer 3

False

Question 4

The governments uses of funds include:

A)printing money.
B)transfer payments.
C)taxes.
D)all of the above.

Question 5

The governments sources of funds include:

A)taxes.
B)printing money.
C)borrowing.
D)all of the above.

Question 6

Total bond holding of all households is B^g_t because:

A)the quantity of all private bonds held by the public is zero.
B)the quantity of all government bonds held by the public is zero.
C)the public views government bonds as less risky than private bonds.
D)the public views private bonds as less risky than government bonds.

Question 7

If money and the price level are constant, then the government's real budget debt is:

A)(B^g_t - B^g_t-1)/P.
B)B^g_t/P.
C)(B_t + B^g_t)/P.
D)none of the above.

Question 8

The governments uses of funds include:

A)government purchases.
B)transfer payments.
C)paying interest on the past government debt.
D)all of the above.

Question 9

The governments uses of funds include:

A)borrowing.
B)printing money.
C)paying interest on the past government debt.
D)all of the above.

Question 10

The governments sources of funds include:

A)government purchases.
B)transfer payments.
C)borrowing.
D)all of the above.

Question 11

A pay as you go social security system raises the capital stock.

Question 12

If money and the price level are constant, then the government's real budget deficit is:

A)(B^g_t - B^g_t-1)/P.
B)B^g_t/P.
C)(B_t + B^g_t)/P.
D)none of the above.

Question 13

When a country has a deficit, its debt is growing.

Question 14

A budget deficit caused by changing labour income taxes changes the labour and production.

Question 15

The governments uses of funds include:

A)government purchases.
B)borrowing.
C)printing money.
D)all of the above.

Question 16

The governments sources of funds include:

A)transfer payments.
B)printing money.
C)paying interest on the government debt.
D)all of the above.

Question 17

If the government reduces taxes by €1 this year without raising taxes or printing more money, then

A)future tax liabilities will rise by €1 plus the interest, R, that must be paid on the borrowing.
B)future tax liabilities will rise by €1 less the interest, R, that must be paid on the borrowing.
C)future tax liabilities will fall by €1 plus the interest, R, that must be paid on the borrowing.
D)future tax liabilities will fall by €1 less the interest, R, that must be paid on the borrowing.

Question 18

Ricardian equivalence implies that a government budget deficit:

A)increases current consumption.
B)increases future tax liabilities.
C)reduces national saving.
D)all of the above.

Question 19

A balanced government budget is one where:

A)government purchases equal taxes.
B)government debt is zero.
C)the governments real savings is zero.
D)all of the above.

Question 20

The governments sources of funds include:

A)taxes.
B)government purchases.
C)paying interest on past bonds.
D)all of the above.

Question 21

Households may feel wealthier due to a tax cut, if:

A)they are very concerned about future generations.
B)they expect the bonds created by the deficit to be paid off after their lifetime.
C)they are using an infinite planning horizon.
D)they plan to leave a bequest to their heirs.

Question 22

Households may feel wealthier due to a tax cut, if:

A)they are not able to borrow as much against future earnings as they wish.
B)they are not able to lend present earnings as much as they wish.
C)they care a lot about future generations.
D)they plan to leave a bequest to their heirs.

Question 23

The standard view of the budget deficit is that it:

A)increases the GDP in the long run.
B)reduces investment.
C)increases the capital stock in the long run.
D)all of the above.

Question 24

The standard view of the budget deficit is that it:

A)reduces the GDP in the long run.
B)reduces investment.
C)reduces the capital stock in the long run.
D)all of the above.

Question 25

The standard view of the budget deficit is that it:

A)reduces the GDP in the long run.
B)increases investment.
C)increases the capital stock in the long run.
D)all of the above.

Question 26

If households ignore effects on future generations, a pay as you go social security system:

A)reduces investment.
B)reduces GDP in the long run.
C)reduces private saving.
D)all of the above.

Question 27

If households ignore effects on future generations, when a pay as you go social security system starts, the then elderly:

A)have a negative income effect on their consumption.
B)receive benefits that in present value is greater than the present value of their contributions to the system.
C)receive low returns on any taxes paid into the system.
D)all of the above.

Question 28

If households ignore effects on future generations, a pay as you go social security system:

A)decreases consumption.
B)reduces the capital stock in the long run.
C)raises national saving.
D)all of the above.

Question 29

The standard view of the budget deficit is that a deficit:

A)does not affect the economy in the long run.
B)and the public debt are a burden on the economy.
C)does not affect the economy in the short run.
D)encourages economic growth.

Question 30

If households ignore effects on future generations, a pay as you go social security system:

A)decreases consumption.
B)increases the capital stock in the long run.
C)reduces national saving.
D)all of the above.

Question 31

If households ignore effects on future generations, a pay as you go social security system:

A)raises current national savings.
B)raises investment.
C)reduces the future capital stock.
D)all of the above.

Question 32

If households ignore effects on future generations, a pay as you go social security system:

A)reduces current national savings.
B)raises investment.
C)raises the future capital stock.
D)all of the above.

Question 33

If households ignore effects on future generations, a pay as you go social security system:

A)reduces current national savings.
B)reduces investment.
C)reduces the future capital stock.
D)all of the above.

Question 34

If households ignore effects on future generations, a pay as you go social security system:

A)increases consumption.
B)reduces the capital stock in the long run.
C)reduces national saving.
D)all of the above.

Question 35

If households ignore effects on future generations, a pay as you go social security system:

A)increases consumption.
B)increases the capital stock in the long run.
C)increases national saving.
D)all of the above.

Question 36

If households ignore effects on future generations, a pay as you go social security system:

A)raises current national savings.
B)reduces investment.
C)raises the future capital stock.
D)all of the above.

Question 37

A strategic budget deficit is designed to:

A)increase GDP.
B)increase economic activity.
C)constrain the behaviour of future governments.
D)all of the above.

Question 38

The standard view of the budget deficit is that it:

A)increases the GDP in the long run.
B)increases investment.
C)reduces the capital stock in the long run.
D)all of the above.

Question 39

If households ignore effects on future generations, a pay as you go social security system:

A)reduces investment.
B)increases GDP in the long run.
C)increases private saving.
D)all of the above.

Question 40

If households ignore effects on future generations when a pay as you go social security system starts, the then elderly:

A)have a positive income effect on their consumption.
B)receive benefits that in present value is less the present value of their contributions.
C)receive low returns on any taxes paid into the system.
D)all of the above.

Question 41

What are public, private and national saving and what is the implication of real national saving?

Question 42

Why might a budget deficit make households feel wealthier after a tax cut?

Question 43

If the time path of government purchases does not change and the government cuts lump sum taxes, then:

A)the interest rate rises.
B)the real wage rate falls.
C)the future capital stock does not change.
D)all of the above.

Question 44

If the time path of government purchases does not change and the government cuts lump sum taxes, then:

A)real GDP falls.
B)real consumption falls.
C)real gross investment does not change.
D)all of the above.

Question 45

A pay as you go social security system only increase consumption and reduces investment, if:

A)households leave bequests.
B)if households neglect the adverse affects on their descendants.
C)if the planning horizon is overlapping generations.
D)households increase their savings.

Question 46

If the time path of government purchases does not change and the government cuts lump sum taxes, then:

A)the interest rate does not change.
B)the real wage rate does not change.
C)the future capital stock does not change.
D)all of the above.

Question 47

What is the government budget constraint when government borrowing is allowed?

Question 48

What is the Ricardian equivalence theorem?

Question 49

Open market operations amount to:

A)printing more money and raising taxes and lowering taxes and raising the public debt.
B)printing less money and reducing taxes and raising taxes and reducing the public debt.
C)printing less money and raising taxes and lowering taxes and raising the public debt.
D)printing more money and reducing taxes and raising taxes and reducing the public debt.

Question 50

If the time path of government purchases does not change and the government cuts lump sum taxes, then:

A)real GDP does not change.
B)real consumption increases.
C)real gross investment falls.
D)all of the above.

Question 51

If the time path of government purchases does not change and the government cuts lump sum taxes, then:

A)the interest rate does not change.
B)the real wage rate rises.
C)the future capital stock falls.
D)all of the above.

Question 52

If the time path of government purchases does not change and the government cuts current labour income taxes, then:

A)labour supply is shifted to the future.
B)labour supply is shifted to the present.
C)present GDP is reduced.
D)future GDP is increased.

Question 53

If the time path of government purchases does not change and the government cuts lump sum taxes, then:

A)real GDP does rise.
B)real consumption does not change.
C)real gross investment rises.
D)all of the above.

Question 54

By varying its budget deficit, a government can:

A)change the timing of taxes.
B)avoid having to raise taxes to pay for a deficit.
C)avoid accumulation of government debt.
D)all of the above.

Question 55

If the time path of government purchases does not change and the government cuts current assets income taxes, then:

A)households save more and consume less in the present.
B)households save and consume less in the present.
C)households save less and consume more in the present.
D)households save and consume more in the present.

Question 56

If the time path of government purchases does not change and the government cuts lump sum taxes, then:

A)real GDP does not change.
B)real consumption does not change.
C)real gross investment does not change.
D)all of the above.

Question 57

If households ignore effects on future generations, a pay as you go social security system:

A)raises investment.
B)increases GDP in the long run.
C)reduces private saving.
D)all of the above.

Question 58

If currently alive households take full account of the negative affects of a pay as you go social security system on their descendants, then the:

A)effects are magnified.
B)effects are nil.
C)effects are exponential.
D)effects are unchanged.

Question 59

What are the effects of the government lowering taxes by €1 for one period in the market clearing model with no transfer payments, the money stock fixed, no inflation and with a given time path of government purchases?

Question 60

If households ignore effects on future generations, a pay as you go social security system:

A)raises investment.
B)reduces GDP in the long run.
C)raises private saving.
D)all of the above.