Question 1

During a recession:

Accepted Answer

A)  automatic increases in tax revenues will help to stabilize the economy. 
B)  automatic increases in government expenditures will help to stabilize the economy. 
C)  automatic decreases in government expenditures will help to stabilize the economy. 
D)  government must balance the budget in order to stabilize the economy.

Question 2

The national debt is defined as:

Accepted Answer

A)  the amount by which current government expenditures exceed current government revenues. 
B)  the amount by which government expenditures have exceeded government revenues over the past decade. 
C)  the accumulated total of the federal government's deficits and surpluses that have occurred over time. 
D)  the accumulated total of the federal government's deficits and surpluses that have occurred since World War II.

Question 3

If there is widespread unemployment in the economy, an increase in the interest rate caused by financing the deficit through issuing government bonds may be small.

Accepted Answer

A) True 
 B)False

Question 4

It is desirable for the federal government to borrow, provided that the money is spent on projects that yield a flow of future benefits sufficient to repay the loan.

Accepted Answer

A) True 
 B)False

Question 5

If the deficit is reduced to zero, the national debt will stop growing.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is correct?

Accepted Answer

A)  The national debt has decreased since the budget agreement has been reached. 
B)  Because the economy has grown at a rapid rate, the national debt has increased in spite of the budget agreements between Congress and the president. 
C)  Most of the federal government debt is held by federal agencies. 
D)  It may sometimes be appropriate for government to run a deficit.

Question 7

"One of the biggest problems associated with a large national debt is the burden that occurs when interest and principal are paid to debt holders." Is this statement true or False? Defend your answer.

Accepted Answer

The answer of "One of the biggest problems associated with...

Question 8

Which of the following statements is correct?

Accepted Answer

A)  Sustained annual budget deficits will produce increased domestic investment. 
B)  Sustained annual increases in domestic investment will produce smaller domestic capital stock. 
C)  Smaller domestic capital stock will result in lower future output and income. 
D)  A sustained budget deficit will have no effect on GDP.

Question 9

A deficit financed by issuing U.S. Treasury bonds to the private sector will:

Accepted Answer

A)  cause the dollar to appreciate, thereby decreasing the relative price of exports. 
B)  cause the dollar to depreciate, thereby decreasing the relative price of exports. 
C)  cause the dollar to appreciate, thereby increasing the relative price of exports. 
D)  cause the dollar to depreciate, thereby increasing the relative price of exports.

Question 10

A budget deficit occurs when government expenditures exceed government revenues.

Accepted Answer

A) True 
 B)False

Question 11

Evaluate the following statement. "Older generations have less of a stake in decreasing the national debt than do younger generations."

Accepted Answer

The answer of Evaluate the following statement. "Older generations have...

Question 12

The fiscal imbalance measures:

Accepted Answer

A)  the present value of expected future outlays compared to the present value of expected future receipts and the current value of financial assets. 
B)  the future value of expected receipts less the future value of government outlays and assets. 
C)  the potential GDP deficit. 
D)  the GDP gap deficit.

Question 13

The total outstanding debt of the federal government consists of:

Accepted Answer

A)  The federal debt, as a percent of GDP. 
B)  The debt financed by foreigners and Americans. 
C)  The public debt and debt financed by the government. 
D)  The public debt and private debt.

Question 14

The portion of the debt that the government owes itself is called the intra-governmental holdings.

Accepted Answer

A) True 
 B)False

Question 15

Economists are more concerned about the public debt than about the gross federal debt because:

Accepted Answer

A)  sale of Treasury securities to the public acquires resources that otherwise might be invested in the private sector. 
B)  buying Treasury securities from the public acquires resources that otherwise might be invested in the private sector. 
C)  adding federal securities to and subtracting them from the government's trust fund effects private investments positively. 
D)  adding federal securities to and subtracting them from the government's trust fund effects private investments negatively.

Question 16

Which of the following is not an option for how to allocate the federal budget surplus?

Accepted Answer

A)  Cut taxes 
B)  Increase government spending 
C)  Reduce the national debt 
D)  All of the above are options.

Question 17

Use the following diagram to answer the following questions.
 
-Refer to Loanable Funds. If the demand for loanable funds is D₁, the equilibrium interest rate and quantity of funds are:

Accepted Answer

A)  i₁ and F₁, respectively. 
B)  i₂ and F₂, respectively. 
C)  i₁ and F₂, respectively. 
D)  i₂ and F₁, respectively.

Question 18

The CBO baseline forecast is a good estimate of the course of the federal unified budget deficit.

Accepted Answer

A) True 
 B)False

Question 19

Suppose that prior to 1998 the national debt of Utopia was $0. In 1998, the government incurred a deficit of $200 million. In 1999, 2000, and 2001 the government incurred a deficit of $180 million, $140 million, and $130 million, respectively. Currently, what is the national debt of Utopia?

Accepted Answer

A)  $650 million. 
B)  $450 million. 
C)  $270 million. 
D)  $130 million.

Question 20

Congress distinguishes between on-budget and off-budget net balances primarily to keep separate books on Social Security.

Accepted Answer

A) True 
 B)False

Exam 15: Sustained Budget Deficits: Is This Any Way to Run a Government

During a recession:

The national debt is defined as:

If there is widespread unemployment in the economy, an increase in the interest rate caused by financing the deficit through issuing government bonds may be small.

It is desirable for the federal government to borrow, provided that the money is spent on projects that yield a flow of future benefits sufficient to repay the loan.

If the deficit is reduced to zero, the national debt will stop growing.

Which of the following statements is correct?

"One of the biggest problems associated with a large national debt is the burden that occurs when interest and principal are paid to debt holders." Is this statement true or False? Defend your answer.

Which of the following statements is correct?

A deficit financed by issuing U.S. Treasury bonds to the private sector will:

A budget deficit occurs when government expenditures exceed government revenues.

Evaluate the following statement. "Older generations have less of a stake in decreasing the national debt than do younger generations."

The fiscal imbalance measures:

The total outstanding debt of the federal government consists of:

The portion of the debt that the government owes itself is called the intra-governmental holdings.

Economists are more concerned about the public debt than about the gross federal debt because:

Which of the following is not an option for how to allocate the federal budget surplus?

Use the following diagram to answer the following questions. -Refer to Loanable Funds. If the demand for loanable funds is D₁, the equilibrium interest rate and quantity of funds are:

The CBO baseline forecast is a good estimate of the course of the federal unified budget deficit.

Suppose that prior to 1998 the national debt of Utopia was $0. In 1998, the government incurred a deficit of $200 million. In 1999, 2000, and 2001 the government incurred a deficit of $180 million, $140 million, and $130 million, respectively. Currently, what is the national debt of Utopia?

Congress distinguishes between on-budget and off-budget net balances primarily to keep separate books on Social Security.