Question 1

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.The debt created by these continuing deficits is

Accepted Answer

A)  sustainable,but the future burden on your children cannot be offset.
B)  sustainable,and the future burden on your children can be offset if you save for them.
C)  not sustainable,and the future burden on your children cannot be offset.
D)  not sustainable,but the future burden on your children can be offset if you save for them.E) A) and C)
F) All of the above

Question 2

Which of the programs below would transfer wealth from the young to the old?

Accepted Answer

A)  Taxes are raised to provide better education.
B)  Taxes are raised to improve government infrastructure such as roads and bridges.
C)  Taxes are raised to provide more generous Social Security benefits.
D)  None of the above transfer wealth form the young to the old.E) All of the above
F) C) and D)

Question 3

Which of the following is not correct?

Accepted Answer

A)  A potential cost of deficits is that they reduce national saving,thereby reducing growth of the capital stock and output growth.
B)  Deficits give people the opportunity to consume at the expense of their children,but they do not require them to do so.
C)  The U.S.debt per-person is large compared with average lifetime income.
D)  Current spending may benefit future generations.E) A) and D)
F) A) and B)

Question 4

From the end of 2005 to the end of 2006,the United States ran a deficit of about $309 billion.The debt at the start of this period was about $4,592 billion.Which of the following combinations of inflation and real GDP growth would have allowed the government to run this deficit while keeping the ratio of real GDP to the debt about the same?

Accepted Answer

A)  about 3% inflation and about 2.2% real GDP growth
B)  about 3% inflation and about 3.2% real GDP growth
C)  about 3.4% inflation and about 3.3% real GDP growth
D)  about 3.4% inflation and about 4% real GDP growthE) A) and B)
F) A) and C)

Question 5

Last year a country's real GDP grew by 4%,it's inflation rate was 2.5%,and it's government budget deficit was about $250 billion.It's debt to GDP ratio was unchanged.About what was it's debt at the start of last year?

Accepted Answer

A)  16.7 trillion
B)  10.0 trillion
C)  6.25 trillion
D)  3.85 trillionE) C) and D)
F) A) and B)

Question 6

Which of the following reduces the potential burden of an increase in debt on future generations?

Accepted Answer

A)  the growth rate of output is high
B)  in response to increased debt,parents save more to leave their children larger bequests
C)  some current government spending benefits future taxpayers
D)  All of the above are correct.E) B) and C)
F) None of the above

Question 7

In fiscal year 2011,the U.S.government ran a deficit of about $1,300 billion.In fiscal year 2012,the government ran a deficit of about $1,087 billion.Other things the same,this change would be expected to have

Accepted Answer

A)  decreased interest rates and investment.
B)  decreased interest rates and increased investment.
C)  increased interest rates and investment.
D)  increased interest rates and decreased investment.E) A) and B)
F) None of the above B

Question 8

If tax rates are raised to avoid a deficit during a recession,then

Accepted Answer

A)  real GDP and deadweight loss from taxes will rise.
B)  real GDP will rise and deadweight loss from taxes will fall.
C)  real GDP will fall and deadweight loss from taxes will rise.
D)  real GDP and deadweight loss from taxes will fall.E) B) and C)
F) A) and D)

Question 9

At the end of 2012,the government had a debt of about $11.3 trillion.If during 2013 real GDP rose 2% and inflation was 2.2%,what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)  about $226.0 billion
B)  about $248.6 billion
C)  about $474.6 billion
D)  about $561.8 billionE) B) and D)
F) A) and D)

Question 10

Over time,continued budget deficits lead to

Accepted Answer

A)  a higher capital stock and higher productivity.
B)  a higher capital stock and lower productivity.
C)  a lower capital stock and higher productivity.
D)  a lower capital stock and lower productivity.E) None of the above
F) All of the above

Question 11

Part of the argument against deficits is that they

Accepted Answer

A)  increase interest rates and investment.
B)  increase interest rates and decrease investment.
C)  decrease interest rates and investment.
D)  decrease interest rates and increase investment.E) B) and D)
F) B) and C)

Question 12

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year.Then the government can have a deficit of about

Accepted Answer

A)  5 percent of GDP without raising the debt-to-income ratio.
B)  4.5 percent of GDP without raising the debt-to-income ratio.
C)  1.25 percent of GDP without raising the debt-to-income ratio.
D)  .5 percent of GDP without raising the debt-to-income ratio.E) B) and D)
F) A) and B) B

Question 13

Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year and a real growth rate of about 3 percent per year.Suppose also that it has nominal GDP of about 400 billion units of currency and current nominal national debt of 200 billion units of domestic currency.Which of the following government spending and taxation figures will keep the debt to-income ratio constant?

Accepted Answer

A)  government spending equal to 30 billion units and tax collections equal to 25 billion units
B)  government spending equal to 30 billion units and tax collections equal to 20 billion units
C)  government spending equal to 30 billion units and tax collections equal to 10 billion units
D)  government spending equal to 30 billion units and tax collections equal to 5 billion unitsE) B) and D)
F) All of the above

Question 14

Government deficits mean that

Accepted Answer

A)  national saving is negative so public saving is negative.
B)  national saving is negative so public saving is lower than otherwise.
C)  public saving is negative so national saving is negative.
D)  public saving is negative so national saving is lower than otherwise.E) A) and B)
F) B) and D)

Question 15

In fiscal year 1997,the U.S.government ran a deficit of about $21.9 billion.In fiscal year 1998,the government ran a surplus of about $69.3 billion.Other things the same,we would expect this change

Accepted Answer

A)  decreased interest rates and investment.
B)  decreased interest rates and increased investment.
C)  increased interest rates and investment.
D)  increased interest rates and decreased investment.E) C) and D)
F) A) and C) B

Question 16

Which of the following is not correct?

Accepted Answer

A)  Government debt can continue to rise forever.
B)  If the government uses funds to pay for investment programs,on net the debt need not burden future generations.
C)  Social Security does not transfer wealth from younger generations to older generations.
D)  The average U.S.citizens' share of the government debt represents less than 2 percent of her lifetime income.E) All of the above
F) A) and B)

Question 17

At the end of 2011 the U.S.government had a debt of about $10.12 trillion.During 2012 inflation was about 2.5% and real GDP grew about 1.6%.What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Accepted Answer

A)  about 414.9 billion
B)  about 404.8 billion
C)  about 253.0 billion
D)  about 161.9 billionE) A) and D)
F) None of the above

Question 18

Suppose that the country of Aquilonia has an inflation rate of about 6 percent per year and a real growth rate of about 3 percent per year.Suppose also that it has nominal GDP of about 500 billion units of currency and current nominal national debt of 100 billion units of domestic currency.Which of the following government spending and taxation figures will keep the debt to income ratio constant?

Accepted Answer

A)  government spending equal to 50 billion units and tax collections equal to 48 billion units
B)  government spending equal to 50 billion units and tax collections equal to 41 billion units
C)  government spending equal to 50 billion units and tax collections equal to 40 billion units
D)  government spending equal to 50 billion units and tax collections equal to 32 billion unitsE) A) and B)
F) A) and D)

Question 19

In fiscal year 2008,the U.S.government ran a deficit of about $459 billion.In fiscal year 2009,the government ran a deficit of about $1,413 billion.Other things the same,this change would be expected to have

Accepted Answer

A)  decreased interest rates and investment.
B)  decreased interest rates and increased investment.
C)  increased interest rates and investment.
D)  increased interest rates and decreased investment.E) A) and D)
F) B) and C)

Question 20

Which of the following would transfer wealth from old to young?

Accepted Answer

A)  Increases in the budget deficit.
B)  Decreased building of highways and bridges.
C)  More generous education subsidies.
D)  Indexation of Social Security benefits to inflation.E) None of the above
F) B) and C)

Exam 23: Six Debates Over Macroeconomic Policy: Should the Government Balance Its Budget

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.The debt created by these continuing deficits is

Correct Answer
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Which of the programs below would transfer wealth from the young to the old?

Correct Answer
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Which of the following is not correct?

Correct Answer
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Last year a country's real GDP grew by 4%,it's inflation rate was 2.5%,and it's government budget deficit was about $250 billion.It's debt to GDP ratio was unchanged.About what was it's debt at the start of last year?

Correct Answer
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Which of the following reduces the potential burden of an increase in debt on future generations?

Correct Answer
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In fiscal year 2011,the U.S.government ran a deficit of about $1,300 billion.In fiscal year 2012,the government ran a deficit of about $1,087 billion.Other things the same,this change would be expected to have

Correct Answer
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B

If tax rates are raised to avoid a deficit during a recession,then

Correct Answer
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At the end of 2012,the government had a debt of about $11.3 trillion.If during 2013 real GDP rose 2% and inflation was 2.2%,what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct Answer
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Over time,continued budget deficits lead to

Correct Answer
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Part of the argument against deficits is that they

Correct Answer
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Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year.Then the government can have a deficit of about

Correct Answer
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B

Correct Answer
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Government deficits mean that

Correct Answer
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In fiscal year 1997,the U.S.government ran a deficit of about $21.9 billion.In fiscal year 1998,the government ran a surplus of about $69.3 billion.Other things the same,we would expect this change

Correct Answer
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B

Which of the following is not correct?

Correct Answer
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At the end of 2011 the U.S.government had a debt of about $10.12 trillion.During 2012 inflation was about 2.5% and real GDP grew about 1.6%.What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Correct Answer
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Correct Answer
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In fiscal year 2008,the U.S.government ran a deficit of about $459 billion.In fiscal year 2009,the government ran a deficit of about $1,413 billion.Other things the same,this change would be expected to have

Correct Answer
verified

Which of the following would transfer wealth from old to young?

Correct Answer
verified

Exam 23: Six Debates Over Macroeconomic Policy: Should the Government Balance Its Budget

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.The debt created by these continuing deficits is

Correct AnswerverifiedShow Answer

Which of the programs below would transfer wealth from the young to the old?

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Last year a country's real GDP grew by 4%,it's inflation rate was 2.5%,and it's government budget deficit was about $250 billion.It's debt to GDP ratio was unchanged.About what was it's debt at the start of last year?

Correct AnswerverifiedShow Answer

Which of the following reduces the potential burden of an increase in debt on future generations?

Correct AnswerverifiedShow Answer

In fiscal year 2011,the U.S.government ran a deficit of about $1,300 billion.In fiscal year 2012,the government ran a deficit of about $1,087 billion.Other things the same,this change would be expected to have

Correct AnswerverifiedB

If tax rates are raised to avoid a deficit during a recession,then

Correct AnswerverifiedShow Answer

At the end of 2012,the government had a debt of about $11.3 trillion.If during 2013 real GDP rose 2% and inflation was 2.2%,what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

Over time,continued budget deficits lead to

Correct AnswerverifiedShow Answer

Part of the argument against deficits is that they

Correct AnswerverifiedShow Answer

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year.Then the government can have a deficit of about

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

Government deficits mean that

Correct AnswerverifiedShow Answer

In fiscal year 1997,the U.S.government ran a deficit of about $21.9 billion.In fiscal year 1998,the government ran a surplus of about $69.3 billion.Other things the same,we would expect this change

Correct AnswerverifiedB

Which of the following is not correct?

Correct AnswerverifiedShow Answer

At the end of 2011 the U.S.government had a debt of about $10.12 trillion.During 2012 inflation was about 2.5% and real GDP grew about 1.6%.What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In fiscal year 2008,the U.S.government ran a deficit of about $459 billion.In fiscal year 2009,the government ran a deficit of about $1,413 billion.Other things the same,this change would be expected to have

Correct AnswerverifiedShow Answer

Which of the following would transfer wealth from old to young?

Correct AnswerverifiedShow Answer

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B

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B

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B

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