Question 1

A budget deficit is best defined as the

Accepted Answer

A)  shortage of spending power created by a government spending cut.
B)  shortage of spending power created by a tax increase.
C)  accumulation of past debt that has not been covered by taxes.
D)  amount by which a government's expenditures exceed receipts during a specific time period.

Question 2

The structural deficit or surplus

Accepted Answer

A)  shows the government where to make cuts in expenditures to follow the balanced budget requirement.
B)  reveals the complicated structure underlying government spending and tax policy.
C)  is the hypothetical deficit or surplus under current fiscal policies if the economy were operating near full employment.
D)  includes all government budgets-federal, state, and local.

Question 3

Although a balanced budget may be appropriate under one monetary policy, a deficit or surplus may be appropriate under a different monetary policy.

Accepted Answer

A) True 
 B)False

Question 4

In the short run, the dominant effect of deficit reduction causes an

Accepted Answer

A)  outward shift of the aggregate supply curve.
B)  inward shift of the aggregate supply curve.
C)  outward shift of the aggregate demand curve.
D)  inward shift of the aggregate demand curve.

Question 5

Most economists agree that the focus of fiscal policy is to

Accepted Answer

A)  plan the economy.
B)  balance aggregate demand and aggregate supply.
C)  balance the federal budget.
D)  balance environmental needs and resources.

Question 6

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

Accepted Answer

A)  significant increases from 1945 to 1975.
B)  significant increases during World Wars I and II.
C)  a larger value in 1975 compared to 1945.
D)  significant increases from 1995 to 2003.

Question 7

The United States need never pay off the national debt; it can simply refinance the debt when it comes due.The flaw in thinking that the government must pay it off is based on the fallacy of

Accepted Answer

A)  benefit-cost ratio.
B)  post hoc, ergo propter hoc.
C)  composition.
D)  a priori expectations.

Question 8

What does it mean to "monetize the deficit"?
 Why is it important in discussions of fiscal policy?
 Use an appropriate diagram to illustrate your answer.

Accepted Answer

If the Fed wishes to keep interest rates...

Question 9

Economic principles suggest that we should focus on balancing the budget rather than balancing aggregate supply and aggregate demand.

Accepted Answer

A) True 
 B)False

Question 10

In 2010, the net national debt was about $9 trillion or approximately $29,000 per person.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

If the economy is in a recessionary gap, and the government attempts to balance the budget, the effect will be to

Accepted Answer

A)  counteract the recession.
B)  worsen and prolong the recession.
C)  end the recession sooner.
D)  increase the level of real GDP.

Question 13

A constitutional amendment requiring an annually balanced budget would help stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 14

Until about 1983, almost all of the U.S.national debt stemmed from

Accepted Answer

A)  financing wars.
B)  bank failures.
C)  development assistance programs.
D)  tax cuts.

Question 15

Because the personal income tax is an automatic stabilizer,

Accepted Answer

A)  inflationary gaps are impossible.
B)  the budget deficit grows during a recession.
C)  the deficit needed to cure a recessionary gap increases.
D)  the structural deficit grows during a recession.
E)  All of the above are correct.

Question 16

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 17

Conventional budget accounting practices tend to overstate deficits in inflationary periods because they

Accepted Answer

A)  ignore the inflation tax.
B)  confuse repayment of principal with real interest expenditures.
C)  double count some expenditures.
D)  understate real interest rates.

Question 18

Figure 16-1
 
-In Figure 16-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.At which level of income does the official budget produce a surplus?

Accepted Answer

A)  Y₄
B)  Y₃
C)  Y₂
D)  Y₁

Question 19

The argument that the national debt imposes a burden on future generations becomes more compelling as

Accepted Answer

A)  the percentage of the national debt held by foreigners rises.
B)  tax rates rise.
C)  interest rates fall.
D)  debt service payments (interest)  rise.

Question 20

When budget deficits take place in a high-employment economy, the effect is an increase in capital stock.

Accepted Answer

A) True 
 B)False

Exam 33: Budget Deficits in the Short and Long Run

Until about 1983, almost all of the U.S.national debt stemmed from

Correct AnswerverifiedShow Answer

The structural deficit or surplus

Correct AnswerverifiedShow Answer

What does it mean to "monetize the deficit"? Why is it important in discussions of fiscal policy? Use an appropriate diagram to illustrate your answer.

Correct AnswerverifiedIf the Fed wishes to keep interest rates...View AnswerShow Answer

The United States need never pay off the national debt; it can simply refinance the debt when it comes due.The flaw in thinking that the government must pay it off is based on the fallacy of

Correct AnswerverifiedShow Answer

Although a balanced budget may be appropriate under one monetary policy, a deficit or surplus may be appropriate under a different monetary policy.

Correct AnswerverifiedShow Answer

Figure 16-1 -In Figure 16-1, there are four levels of income.G is government expenditures and TT is taxes less transfers.At which level of income does the official budget produce a surplus?

Correct AnswerverifiedShow Answer

Economic principles suggest that we should focus on balancing the budget rather than balancing aggregate supply and aggregate demand.

Correct AnswerverifiedShow Answer

Because the personal income tax is an automatic stabilizer,

Correct AnswerverifiedShow Answer

A budget deficit is best defined as the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Most economists agree that the focus of fiscal policy is to

Correct AnswerverifiedShow Answer

In the short run, the dominant effect of deficit reduction causes an

Correct AnswerverifiedShow Answer

The argument that the national debt imposes a burden on future generations becomes more compelling as

Correct AnswerverifiedShow Answer

When budget deficits take place in a high-employment economy, the effect is an increase in capital stock.

Correct AnswerverifiedShow Answer

If the economy is in a recessionary gap, and the government attempts to balance the budget, the effect will be to

Correct AnswerverifiedShow Answer

Conventional budget accounting practices tend to overstate deficits in inflationary periods because they

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A constitutional amendment requiring an annually balanced budget would help stabilize the economy.

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

In 2010, the net national debt was about $9 trillion or approximately $29,000 per person.

Correct AnswerverifiedShow Answer

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If the Fed wishes to keep interest rates...
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