Deck 17: The Government and the Macroeconomy

Question 1

Consider Figure 17.2,which shows the federal government receipts and outlays for the period 1934-2006,as percent of GDP.Which of the following were periods when the federal government ran a budget surplus?

A)1947-1949
B)1998-2002
C)1955-1958
D)all of the above
E)none of the above

Answer 1

D

Question 2

The difference between the gross federal debt and the debt by the public is debt held by:

A)other government entities.
B)the Social Security administration.
C)foreign central banks.
D)all of the above
E)a and b only

Answer 2

E

Question 3

Consider Figure 17.1,which shows the federal government receipts and outlays for the period 1970-2006,in billions of dollars.The federal government ran a surplus during the period

A)1980-1997.
B)1971-1973.
C)1998-2002.
D)2002-2006.
E)Not enough information is given.

Answer 3

C

Question 4

The current U.S.debt-to-GDP ratio is about:

A)20 percent.
B)120 percent.
C)65 percent.
D)50 percent.
E)none of the above

Question 5

The country with the largest annual government spending-to-GDP ratio is:

A)the Euro area.
B)South Korea.
C)the United States.
D)the United Kingdom.
E)Japan.

Question 6

Since 1940,the largest gross federal debt-to-GDP ratio occurred during __________,when it reached about __________.

A)9/11;120 percent
B)the oil crisis;120 percent
C)World War II;50 percent
D)World War II;120 percent
E)9/11;65 percent

Question 7

Consider Figure 17.2,which shows the federal government receipts and outlays for the period 1934-2006.The only period(s)in which the federal government ran a budget surplus since 1970 was (were):

A)1998-2002.
B)1970.
C)1973-2001.
D)none of the above
E)a and b

Question 8

The ratio of all levels of government spending to GDP in the United States is about:

A)10 percent.
B)50 percent.
C)20 percent.
D)70 percent.
E)36 percent.

Question 9

In the post-World War II U.S.economy,the rapid expansion of federal government debt began during:

A)the oil embargo.
B)the Kennedy administration.
C)the Reagan administration.
D)the collapse of the Bretton Woods system.
E)the Clinton administration.

Question 10

Consider Figure 17.2,which shows the federal government receipts and outlays for the period 1934-2006.What was the cause of the huge budget deficit beginning in 1940?

A)oil crisis
B)World War II
C)President Reagan's defense expenditures
D)Vietnam War
E)the Volcker recession

Question 11

The government uses funds to:

A)make transfer payments.
B)buy goods and services.
C)pay interest on outstanding debt.
D)all of the above
E)a and b only

Question 12

The budget balance is the:

A)level of firm investment.
B)difference between exports and imports.
C)difference between household spending and income
D)difference between tax revenue and government spending.
E)difference between movements of assets across countries.

Question 13

The current U.S.debt held by the public to GDP ratio is about:

A)100 percent.
B)67 percent.
C)37 percent.
D)50 percent.
E)none of the above

Question 14

Which of the following countries has the largest government spending-to-GDP ratio?

A)France
B)the United States
C)Sweden
D)the United Kingdom
E)Germany

Question 15

The federal government usually finances its budget deficit by:

A)raising taxes.
B)selling its real assets.
C)selling government bonds.
D)borrowing from commercial banks.
E)borrowing from foreign governments.

Question 16

The ratio of federal government spending to GDP in the United States is about:

A)50 percent.
B)40 percent.
C)20 percent.
D)10 percent.
E)35 percent.

Question 17

Government expenditures include:

A)state government spending.
B)federal government spending.
C)local government spending.
D)all of the above
E)none of the above

Question 18

U.S.government debt that is not held by the public often is not counted in economic analyses because:

A)it is paid out to U.S.citizens.
B)it is debt to a very large institution.
C)it is an asset transfer from one branch of government to another.
D)it is part of the Social Security system.
E)it is rolled over into new debt.

Question 19

The country with the smallest annual government spending-to-GDP ratio is:

A)France.
B)the United States.
C)the United Kingdom.
D)South Korea.
E)Japan.

Question 20

Which of the following countries has negative government debt?

A)Mexico
B)the United States
C)South Korea
D)Russia
E)Germany

Question 21

Given what you know about the sizes of economies,which of the following countries probably would find it impossible to borrow more than $500 billion?

A)Egypt
B)Vietnam
C)Russia
D)Croatia
E)all of the above

Question 22

In the intertemporal budget constraint,the term
Is called:

A)the total debt.
B)the initial debt.
C)the government deficit.
D)the government surplus.
E)none of the above

Question 23

If investors begin to doubt the ability to finance spending with __________,markets will demand __________.

A)borrowing;more bonds
B)only taxes;higher interest rates
C)taxes and borrowing;higher interest rates
D)borrowing;less government spending
E)taxes and borrowing;lower interest rates

Question 24

Given what you know about the sizes of economies,which of the following countries probably would find it impossible to borrow more than $500 billion?

A)France
B)Mongolia
C)Germany
D)the United States
E)Japan

Question 25

Which of the following represents the government's budget constraint?

A)
B)
C)
D)
E)

Question 26

Which of the following is not an issue of large deficits and a large debt-to-GDP ratio for the economy?

A)intergenerational equity
B)the importance of economic growth
C)the possibility of high inflation or default
D)the impacts on the overall money supply
E)the extent to which deficits crowd out private investment

Question 27

The difference between the primary and total deficits is that the primary deficit:

A)is always balanced.
B)includes spending on interest.
C)excludes spending on interest.
D)is never balanced.
E)equals zero.

Question 28

Consider the government's intertemporal budget constraint:
Term A is __________,and term B is __________.

A)the present value of government spending;the initial debt
B)the total annual spending;the deficit
C)the initial period's spending;the initial debt
D)the present value of government spending and taxes;the present value of government spending
E)None of the above is correct.

Question 29

If a government has a difficult time raising funds by borrowing,it ____ which generates __________.

A)must print money;inflation
B)must print money;high interest rates
C)raises taxes;inflation
D)raises taxes;unemployment
E)a and b

Question 30

If we assume that
,which of the following represents the government's budget constraint?

A)
B)
C)
D)
E)Both a and b are correct.

Question 31

Under which condition can the government continue to accumulate debt?

A)if it issues more bonds
B)if the government promises to pay it back
C)if the economy grows faster than the debt
D)if it appropriates funds from another economy
E)none of the above

Question 32

Which of the following is an indicator of whether or not a country can borrow?

A)the size of the tax base
B)the size of the economy
C)the reputation of the head of government
D)the size of the military
E)a or b

Question 33

The sources of funds for the government are:

A)sales of real assets.
B)loans from commercial banks.
C)gold.
D)all of the above
E)none of the above

Question 34

The sources of funds for the government are:

A)tax revenues.
B)new borrowing.
C)printing money.
D)all of the above
E)a and b only

Question 35

The government's intertemporal budget constraint assumes that:

A)the budget is never balanced.
B)the budget is balanced in the first period.
C)the budget is balanced in the last period.
D)the budget is always balanced.
E)none of the above

Question 36

Which of the following countries has defaulted on its debt?

A)France
B)Argentina
C)the United Kingdom
D)Belgium
E)China

Question 37

The economic meaning of the intertemporal budget constraint is that:

A)the government's budget never has to balance.
B)the government's budget must balance period by period.
C)the present discounted value of the government's budget must balance.
D)the government can always push its debt on future generations.
E)every generation faces the same tax schedule.

Question 38

Which of the following should economic policymakers consider to be associated with large deficits and a large debt-to-GDP ratio?

A)the importance of economic growth
B)the possibility of high inflation or default
C)intergenerational equity
D)the extent to which deficits crowd out private investment
E)all of the above

Question 39

An implication of the intertemporal budget constraint is that:

A)the government can borrow only as much as it can credibly pay back.
B)the government can borrow as much as it wants.
C)the government must always have a balanced budget.
D)the government must balance its budget over the business cycle.
E)all generations pay the same amount of taxes.

Question 40

The government's intertemporal budget constraint is a simple two-period case in which:

A) .
B) .
C) .
D) .
E) .

Question 41

The national income identity can be rearranged to show that __________ equals __________.

A)Private saving + Government saving + Foreign saving;investment
B)Private saving - Government saving + Investment;the budget deficit
C)Private saving - Government saving - Foreign saving;investment
D)Private saving;investment
E)Private saving + Government saving + Foreign saving;tax revenues

Question 42

The idea that present generations benefit from borrowing what future generations must pay is called:

A)the budget deficit.
B)intertemporal substitution.
C)the intertemporal budget constraint.
D)generational accounting.
E)discretionary spending.

Question 43

The basic point of generational accounting is that high and rising debt-GDP ratios imply:

A)higher interest rates in the future.
B)lower tax rates on future generations.
C)higher tax rates on future generations.
D)reduced government expenditures in the future.
E)rising government expenditures in the future.

Question 44

If __________ hold(s),then holding the present value of government spending constant,budget deficits will not crowd out investment.

A)adaptive expectations
B)generational accounting
C)crowding in
D)lower interest rates
E)None of the above is correct.

Question 45

According to a Congressional Budget Office report,"A 125-Year Picture of the Federal Government's Share of the Economy,1950 to 2075," __________,assuming current federal government spending patterns.

A)the share of government spending in GDP will climb to 40 percent by 2075
B)the share of government spending in GDP will climb to 40 percent by 2010
C)the share of government spending in GDP will climb to 100 percent in 2075
D)the share of government spending in GDP will fall to 0 percent in 2075
E)the share of government spending in GDP will not change between now and 2075

Question 46

If current generations are depleting nonrenewable resources,they must compensate future generations by:

A)saving gold.
B)printing more money.
C)investing in capital.
D)buying more military equipment.
E)increasing the stock of renewable resources.

Question 47

An explanation of why governments are willing to burden future generations with debt to finance a war today is:

A)only present generations enjoy peace.
B)future generations will enjoy peace and must pay nothing.
C)future generations will enjoy peace and must pay something.
D)future generations will never enjoy peace but must pay for current generations to enjoy it.
E)current generations are more important to the government than future generations.

Question 48

The difference between imports and exports is:

A)domestic saving.
B)the trade balance.
C)foreign saving.
D)the budget deficit.
E)a and b

Question 49

According to a Congressional Budget Office report,"A 125-Year Picture of the Federal Government's Share of the Economy,1950 to 2075," the share of federal government spending in GDP will climb to 40 percent by 2075,__________.

A)assuming household consumption falls
B)assuming government spending rises sharply
C)assuming government spending falls slightly
D)assuming current spending patterns
E)assuming the entire "baby boomer" generation retires in the same year

Question 50

__________ is (are)what may happen when the central government needs to borrow to finance its deficit to the detriment of private firms.

A)Lower interest rates
B)Crowding out
C)Higher rates of inflation
D)A lower marginal product of capital
E)More unemployment

Question 51

If current generations are depleting nonrenewable resources,they must compensate future generations by:

A)investing in capital.
B)investing in education.
C)investing in research.
D)doing all of the above.
E)doing none of the above.

Question 52

According to a Congressional Budget Office report,"A 125-Year Picture of the Federal Government's Share of the Economy,1950 to 2075," the main culprit for the increase in federal government spending to about 40 percent of GDP in 2075 is (are):

A)Medicare.
B)Medicaid.
C)defense spending.
D)all of the above
E)a and b

Question 53

If domestic saving is less than domestic investment,then investment can be financed by:

A)the budget deficit.
B)foreign saving.
C)higher interest rates.
D)new savings instruments.
E)higher rates of inflation.

Question 54

If the government increases its budget deficit,__________ is ameliorated if the economy has access to __________.

A)crowding out;foreign savings
B)crowding out;a money printing press
C)inflation;household savings
D)unemployment;the tax structure
E)lower interest rates;foreign savings

Question 55

__________ implies (imply)that,holding the present value of government spending constant,budget deficits will not crowd out investment.

A)Crowding in
B)Generational accounting
C)Ricardian equivalence
D)Lower interest rates
E)Lower taxes

Question 56

Income minus taxes is often called:

A)investment.
B)consumption.
C)disposable income.
D)gross income.
E)none of the above

Question 57

Income minus taxes is often called:

A)government expenditures.
B)consumption.
C)investment.
D)gross income.
E)none of the above

Question 58

According to a Congressional Budget Office report,"A 125-Year Picture of the Federal Government's Share of the Economy,1950 to 2075," by the year 2075,spending on entitlement programs will be about __________.

A)19 percent of GDP
B)21 percent of household expenditures
C)100 percent of tax revenues
D)21 percent of GDP
E)zero

Question 59

By issuing bonds to finance a war in the present,in the language of generational accounting,

A)pay no burden to enjoy peace.
B)future generations are paying for the peace they enjoy.
C)past and present generations pay for the peace.
D)only past generations pay for peace.
E)None of the above is correct.

Question 60

If domestic saving is less than domestic investment,then investment is financed by:

A)an inflation tax.
B)nothing-it cannot be done.
C)higher interest rates.
D)foreign saving.
E)printing more money.

Question 61

The ratio of all levels of government spending-to-GDP in the United States is under 40 percent.

Question 62

The debt-to-GDP ratio in the United States was over 100 percent during World War II.

Question 63

If the federal government has a budget shortfall,it generally sells some of its real asset holdings to cover the excess outlays.

Question 64

According to the text,the main culprit for the rapid increase in medical expenditures is:

A)changing preferences.
B)the aging of the population.
C)the rising cost of health insurance.
D)anecdotes about doctors who induce patients to spend more on medical care than they really would prefer.
E)the use of new and expensive medical technology.

Question 65

When we discuss government expenditure,we are talking about only federal government expenditures.

Question 66

There is a "magic level" of the debt-GDP ratio that triggers government default.

Question 67

Which of the following are possible explanations for rising health care expenditures?

A)the rising cost of health insurance
B)the aging of the population
C)anecdotes associated with doctors who induce patients to spend more on medical care than they really would prefer
D)the use of new and expensive medical technology
E)all of the above

Question 68

If a government has a difficult time raising funds by borrowing,it must print money,which generates inflation.

Question 69

According to a Congressional Budget Office report,"A 125-Year Picture of the Federal Government's Share of the Economy,1950 to 2075," government revenues are projected to __________ by the year __________,assuming current federal government spending patterns.

A)stabilize;2075
B)stabilize;2020
C)begin growing faster;2020
D)begin growing slower;2010
E)be zero;2075

Question 70

The largest debt-to-GDP ratio is in the United States.

Question 71

Which of the following is (are)possible causes of rising health care expenditures?

A)people's preferences
B)the falling cost of health insurance
C)anecdotes about doctors who induce patients to spend less on medical care when they are young and healthy
D)all of the above
E)none of the above

Question 72

The government's intertemporal budget constraint assumes the budget is always balanced.

Question 73

According to the law of diminishing returns,the longer we live,

A)the more we will be willing to pay more for medical care than for other goods and services.
B)the larger the burden on taxpayers to finance retirement for retirees.
C)the less energy we will use.
D)the less medical care we will need.
E)the lower our income.

Question 74

The largest U.S.debt-to-GDP ratio occurred during the Great Depression.

Question 75

When we discuss government expenditure,we are talking about only purchases of goods and services.

Question 76

Empirical tests of crowding show strong evidence for crowding out.

Question 77

An implication of the intertemporal budget constraint is that the government can borrow as much as it wants.

Question 78

Which country has the highest share of medical expenses to GDP?

A)Japan
B)Germany
C)the United States
D)France
E)the United Kingdom

Question 79

If the economy grows faster than the debt,the government can continue to accumulate debt.

Question 80

The best indicator of whether or not a country can borrow is the credibility of the central government.