Question 1

Explain why the portion of the national debt owed to foreigners is a serious matter, whereas the portion owed to U.S. citizens is of less concern. Why does the U.S. national debt pose less of a problem than the debts of Greece in 2010?

Accepted Answer

The portion owed to foreigners will redu...

Question 2

Debt is to deficit as

Accepted Answer

A)   money is to income.
B)   flow is to stock.
C)   rent is to dividend.
D)   property is to wealth.E) C) and D)
F) A) and C)

Question 3

Monetizing deficits has led to serious inflation in

Accepted Answer

A)   the United States.
B)   Canada.
C)   the United Kingdom.
D)   Russia, Latin America, and Israel.
E)   All of the above are correct.F) A) and C)
G) C) and E)

Question 4

A budget surplus exists when

Accepted Answer

A)   tax receipts
B)   tax receipts > government expenditures + transfers.
C)   government expenditures − transfers > tax receipts.
D)   government expenditures > transfers + tax receipts.E) B) and C)
F) A) and B)

Question 5

Structural budget deficit is the hypothetical deficit we would have under current fiscal policies if the economy were operating near full employment.

Accepted Answer

A) True 
 B)False

Question 6

Increases in government spending or tax cuts normally push interest rates up.

Accepted Answer

A) True 
 B)False

Question 7

The national debt

Accepted Answer

A)   is increased by budget surpluses.
B)   is the value of the government's indebtedness at a moment in time.
C)   exceeded $20 trillion in 2014.
D)   all of the above are correct.E) C) and D)
F) B) and D)

Question 8

The crowding-in effect depends on the sensitivity of investment to

Accepted Answer

A)   GDP, as does the crowding-out effect.
B)   interest rates, whereas the crowding-out effect depends on the sensitivity of investment to GDP.
C)   interest rates, as does the crowding-out effect.
D)   GDP, whereas the crowding-out effect depends on the sensitivity of investment to interest rates.E) C) and D)
F) All of the above

Question 9

Contractionary fiscal policies used to reduce the deficit in the 1990s did not hurt the economy because fiscal and monetary policies were well coordinated at that time.

Accepted Answer

A) True 
 B)False

Question 10

Until about 1983, almost all of U.S. national debt stemmed from financing wars or from the loss of tax revenues that accompany recessions.

Accepted Answer

A) True 
 B)False

Question 11

Very recently, the debt-to-GDP ratio has been:

Accepted Answer

A)   higher than usual.
B)   lower than usual.
C)   stabilized.
D)   volatile.E) All of the above
F) C) and D)

Question 12

The federal budget deficit in 2009 was more than eight times larger than the deficit in 2007.

Accepted Answer

A) True 
 B)False

Question 13

Describe the particular policy mix that accounts for the favorable economic conditions of the late 1990s. Be sure to specify the fiscal and monetary policies pursued during this period.

Accepted Answer

Through a combination of government spen...

Question 14

A chart of the ratio of national debt to GDP from 1915 to 2014 would show

Accepted Answer

A)   a continuous decline.
B)   sharp increases from 1945 to 1975.
C)   significant increases from 1983 to 1994.
D)   significant decreases from 2003 to 2010.E) B) and D)
F) A) and B)

Question 15

The budget deficits of the 1980s and early 1990s differ from others in the post-World War II era in that they were

Accepted Answer

A)   a result of the Fed rather than a change in fiscal policy.
B)   temporary rather than structural, and pose no threat to the economy.
C)   not contracted to fight a war or end a recession.
D)   contracted as part of a program to plan the economy.E) A) and B)
F) C) and D)

Question 16

Same level of fiscal and monetary policy can be generated by _________________________________________, but the composition of GDP will be different in each case.

Accepted Answer

A)   more than one mix of fiscal and monetary policy
B)   only fiscal policy
C)   monetary policy
D)   none of theseE) A) and B)
F) A) and C)

Question 17

To correct the budget deficit for inflation, we should

Accepted Answer

A)   multiply the budget deficit by the price deflator for GDP.
B)   subtract interest payments from tax revenues.
C)   divide the budget deficit by nominal GDP.
D)   divide the budget deficit by the consumer price index.E) A) and B)
F) A) and C)

Question 18

Which of the following is not true with regard to the burden of the U.S. national debt?

Accepted Answer

A)   The debt does burden future generations to the extent that it is sold to foreigners.
B)   Budget deficits are not appropriate for stabilization purposes under any circumstances.
C)   The debt will reduce the nation's capital stock if incurred during a fully employed economy.
D)   The large deficits of the 1980s and early 2000 were particularly worrisome because they were not attributable to recessions.E) All of the above
F) B) and D)

Question 19

Monetizing the deficit contributes to the inflationary pressures that are already present in the economy.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following individuals would be most likely to support a balanced budget amendment to the constitution?

Accepted Answer

A)   "Christmas is when children ask Santa Claus for things and their parents pay for them. Deficits is when adults ask government for things and their children pay for them." -Richard Lamm
B)   "In a boom, inflation can be caused by allowing unlimited credit to support excited enthusiasm of business speculators. But in a slump government expenditure is the only sure means of obtaining quickly a rising output." -J.M. Keynes
C)   "If we face a recession we should not lay off employees. Employees are not guilty; why should they suffer?" -Akio Morita
D)   "Underbalancing the budget during a depression is not primarily a deliberate policy but a practical necessity." -Gunnar MyrdalE) B) and C)
F) A) and B)

Exam 32: Budget Deficits in the Short and Long Run

A budget surplus exists when

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Which of the following individuals would be most likely to support a balanced budget amendment to the constitution?

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Monetizing deficits has led to serious inflation in

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Same level of fiscal and monetary policy can be generated by _________________________________________, but the composition of GDP will be different in each case.

Correct AnswerverifiedShow Answer

Debt is to deficit as

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Until about 1983, almost all of U.S. national debt stemmed from financing wars or from the loss of tax revenues that accompany recessions.

Correct AnswerverifiedShow Answer

The budget deficits of the 1980s and early 1990s differ from others in the post-World War II era in that they were

Correct AnswerverifiedShow Answer

The federal budget deficit in 2009 was more than eight times larger than the deficit in 2007.

Correct AnswerverifiedShow Answer

Describe the particular policy mix that accounts for the favorable economic conditions of the late 1990s. Be sure to specify the fiscal and monetary policies pursued during this period.

Correct AnswerverifiedThrough a combination of government spen...View AnswerShow Answer

To correct the budget deficit for inflation, we should

Correct AnswerverifiedShow Answer

Monetizing the deficit contributes to the inflationary pressures that are already present in the economy.

Correct AnswerverifiedShow Answer

A chart of the ratio of national debt to GDP from 1915 to 2014 would show

Correct AnswerverifiedShow Answer

The crowding-in effect depends on the sensitivity of investment to

Correct AnswerverifiedShow Answer

Structural budget deficit is the hypothetical deficit we would have under current fiscal policies if the economy were operating near full employment.

Correct AnswerverifiedShow Answer

Which of the following is not true with regard to the burden of the U.S. national debt?

Correct AnswerverifiedShow Answer

Contractionary fiscal policies used to reduce the deficit in the 1990s did not hurt the economy because fiscal and monetary policies were well coordinated at that time.

Correct AnswerverifiedShow Answer

The national debt

Correct AnswerverifiedShow Answer

Increases in government spending or tax cuts normally push interest rates up.

Correct AnswerverifiedShow Answer

Very recently, the debt-to-GDP ratio has been:

Correct AnswerverifiedShow Answer

Explain why the portion of the national debt owed to foreigners is a serious matter, whereas the portion owed to U.S. citizens is of less concern. Why does the U.S. national debt pose less of a problem than the debts of Greece in 2010?

Correct AnswerverifiedThe portion owed to foreigners will redu...View AnswerShow Answer

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Through a combination of government spen...
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The portion owed to foreigners will redu...
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