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Name: __________________________ Date: _____________
1.
When a government spends more than it collects in taxes, it runs a:
A)
trade deficit.
B)
trade surplus.
C)
budget surplus.
D)
budget deficit.
2.
Government debt equals the:
A)
difference between current government purchases and taxes.
B)
difference between saving and investment.
C)
sum of past budget deficits and surpluses.
D)
M1 money supply.
3.
The amount by which government spending exceeds government revenues is called the ______, and the accumulation of past government borrowing is called the ______.
A)
deficit; debt
B)
debt; deficit
C)
devaluation; deflation
D)
deflation; devaluation
4.
The government budget deficit is the ______, and government debt is the ______.
A)
amount by which imports exceed exports; amount by which government spending exceeds government revenue
B)
amount by which government spending exceeds government revenue; amount by which imports exceed exports
C)
amount by which government spending exceeds government revenue; accumulation of past government borrowing
D)
accumulation of past government borrowing; amount by which government spending exceeds government revenue
5.
If the debt of the U.S. federal government in 2008 was divided equally among the people in the United States, then the debt per person would equal approximately:
A)
$3,500.
B)
$35,000.
C)
$53,000.
D)
$153,000.
6.
Compared to the size of government debt as a percentage of GDP in other major industrial countries, the federal government of the United States:
A)
is one of the most heavily indebted governments.
B)
has accumulated a relatively small debt.
C)
has accumulated somewhat greater than average debt.
D)
is one of the least indebted governments.
7.
Historically, the primary cause of increases in government debt is:
A)
printing too much money.
B)
cutting taxes.
C)
increasing interest rates.
D)
financing wars.
8.
The large increase in U.S. government debt between 1980 and 1995 was unusual because it occurred:
A)
during peacetime.
B)
during an extended recessionary period.
C)
without increased government spending.
D)
without tax cuts.
9.
Relative to the size of GDP, the U.S. federal government debt was at its maximum:
A)
at the end of the Revolutionary War.
B)
at the end of the Civil War.
C)
at the end of World War II.
D)
following the 9/11 terrorist attacks in 2001.
10.
Holding other factors constant, the ratio of government debt to GDP can decrease as a result of any of the following changes except:
A)
decreases in government spending.
B)
increases in GDP.
C)
decreases in tax revenues.
D)
decreases in transfer payments.
11.
If government debt is not changing, then:
A)
the economy is at long-run equilibrium.
B)
the government's budget must be balanced.
C)
GDP must equal the natural rate of output.
D)
capital per worker is constant.
12.
The factors most responsible for forecasts of the U.S. government debt spiraling out of control in the next half century are the projected:
A)
slowdowns in the rates of technological change and human capital growth.
B)
decrease in high-skilled domestic workers and the increase in immigration of low-skilled workers into the United States.
C)
aging of the U.S. population and rising health care costs.
D)
increase in international competition and the outsourcing of U.S. jobs.
13.
An increase in the elderly population of a country affects fiscal policy most directly because:
A)
the elderly generally are not required to pay taxes.
B)
governments provide pensions and health care for the elderly.
C)
the elderly favor high interest rates on their savings.
D)
governments spend more on education as the proportion of the elderly increases.
14.
Which of the following is the most likely explanation of the August 2011 decision by Standard and Poor's to reduce its credit rating on U.S. government bonds?
A)
A U.S. government debt default was not a likely outcome, but was a possibility to occur in the short term.
B)
The U.S. government budget deficit was too large.
C)
Strategies to reduce predicted U.S. government future budget deficits did not appear likely, making default a possibility.
D)
Foreign governments were no longer willing to lend to the U.S. government.
15.
In a time of inflation when the government budget is balanced in the conventional sense, the real (i.e., deflated) value of the government debt is:
A)
growing at the rate of inflation.
B)
growing, but at a rate less than the rate of inflation.
C)
constant.
D)
decreasing at the rate of inflation.
16.
In a time of inflation when the real (i.e., deflated) value of the government debt is constant, then the conventionally:
A)
reported government budget will show a deficit equal to the inflation rate times the outstanding debt.
B)
reported government budget will show a deficit equal to less than the inflation rate times the outstanding debt.
C)
reported government budget will be balanced.
D)
measured government budget will show a surplus equal to the inflation rate times the outstanding debt.
17.
Assume that the nominal interest rate is 11 percent, the inflation rate is 8 percent, and government debt at the beginning of the year equals $4 trillion. By how much is the government budget deficit overstated as a result of inflation?
A)
$0.12 trillion
B)
$0.32 trillion
C)
$0.44 trillion
D)
$0.80 trillion
18.
A deficit adjusted for inflation should include only government spending used to make _____ interest payments.
A)
real
B)
nominal
C)
foreign
D)
domestic
19.
If the government debt, D, equals $5 trillion, the nominal interest rate is 7 percent, and the real interest rate is 3 percent, then nominal budget deficit overstates the real deficit by $ ___ trillion.
A)
0.35
B)
0.20
C)
0.15
D)
0.07
20.
Current measures of the U.S. federal government's budget deficit account for all of the following except:
A)
government expenditures.
B)
government revenues.
C)
changes in government indebtedness.
D)
changes in government capital assets.
21.
If capital budgeting procedures were employed, then a budget deficit would be measured as:
A)
the sum of government debt.
B)
the change in government debt.
C)
the change in government debt minus the change in government capital assets.
D)
the change in government capital assets.
22.
When the federal government incurs additional debt to acquire an asset, under current budgeting procedures the deficit ______, while under capital budgeting procedures the deficit ______.
A)
does not change; increases
B)
increases; does not change
C)
does not change; decreases
D)
decreases; does not change
23.
Capital budgeting is a procedure that:
A)
adjusts the deficit for inflation.
B)
estimates what the deficit would be if the economy were operating at the natural rate of output.
C)
accounts for assets as well as liabilities.
D)
measures the impact of fiscal policy on the lifetime incomes of individuals of different ages.
24.
Under capital budgeting, all of the following transactions would affect the federal budget deficit except the federal government's:
A)
sending a check to a welfare recipient.
B)
sending a check to the state of Massachusetts.
C)
selling a highway to the state of New York and using the proceeds to retire federal debt.
D)
selling an office building.
25.
The amount the government would owe if a borrower were to default on a government-guaranteed loan is an example of:
A)
capital budgeting.
B)
a contingent liability.
C)
a cyclically adjusted liability.
D)
Ricardian equivalence.
26.
One item that is considered part of the federal debt is:
A)
Treasury bills.
B)
future Social Security benefits.
C)
student loans, which may go into default.
D)
potential liabilities of savings and loan associations.
27.
The debt of the United States government is underreported in the view of many economists because all of the following liabilities are excluded except:
A)
future pensions of government employees.
B)
debt owed to foreigners.
C)
future Social Security benefits.
D)
government guarantees of student loans.
28.
The cyclically adjusted budget deficit:
A)
adjusts the deficit for inflation.
B)
estimates what the deficit would be if the economy were operating at the natural rate of output.
C)
accounts for assets as well as liabilities.
D)
measures the impact of fiscal policy on the lifetime incomes of individuals of different ages.
29.
An estimate of what government spending and tax revenue would be if the economy were operating at its natural rate of output and employment is called the ______ budget.
A)
cyclically adjusted
B)
inflation-adjusted
C)
capital-asset
D)
generational accounting
30.
Cyclically adjusted budgets are useful because they:
A)
systematically account for changes in government assets and liabilities.
B)
reflect policy changes, but not current economic conditions.
C)
account for tax burdens on different generations of taxpayers.
D)
correctly account for the impact of inflation on government indebtedness.
31.
Assume that a government has a balanced budget when the economy is at full employment. If the economy then enters a recession, with no change in tax or spending laws, then the budget of the government is most likely to:
A)
remain balanced.
B)
be in deficit.
C)
be in surplus.
D)
be in either deficit or surplus, depending on the severity of the recession.
32.
Each of the following changes would allow the measured budget deficit to provide a truer picture of fiscal policy except:
A)
correcting for the effects of inflation.
B)
offsetting changes in government liabilities with changes in government assets.
C)
excluding some liabilities altogether.
D)
correcting for the effects of the business cycle.
33.
Measuring the size of government debt is complicated by all of the following factors except:
A)
inflation.
B)
uncounted liabilities.
C)
capital assets of the government.
D)
failure of the Office of Management and Budget to disclose figures on capital expenditures and credit programs.
34.
According to the traditional view of government debt, if taxes are cut without cutting government spending, then the long-run effects will be ______ steady-state capital and ______ consumption.
A)
higher; higher
B)
lower; lower
C)
higher; lower
D)
lower; higher
35.
According to the traditional view of government debt, if taxes are cut without cutting government spending, then the short-run effects will be:
A)
higher output and lower unemployment.
B)
higher output and higher unemployment.
C)
no change in output or unemployment.
D)
no change in output and higher unemployment.
36.
According to the traditional view of government debt, if taxes are cut without cutting government spending, then the international effect initially will be a capital ______ and a trade ______.
A)
inflow; deficit
B)
inflow; surplus
C)
outflow; deficit
D)
outflow; surplus
37.
According to the traditional view of government debt, if taxes are cut without a cut in government spending, then in the United States this situation will lead to ______ net indebtedness on the part of the United States to foreign countries and ______ net exports.
A)
more; more
B)
more; fewer
C)
less; fewer
D)
less; more
38.
The international impacts of a debt-financed tax cut, according to the traditional view of government debt, are a(n) ______ in net exports and a domestic currency _____.
A)
increase; appreciation
B)
increase; depreciation
C)
decrease; depreciation
D)
decrease; appreciation
39.
According to the traditional viewpoint of government debt, a tax cut without a cut in government spending:
A)
stimulates consumer spending in the short run and reduces national saving.
B)
stimulates consumer spending in the short run and reduces private saving.
C)
has no effect on consumer spending but reduces national saving.
D)
has no effect on consumer spending but reduces private saving.
40.
According to the traditional viewpoint of government debt, a tax cut without a cut in government spending:
A)
raises consumption in both the short run and the long run.
B)
lowers consumption in both the short run and the long run.
C)
raises consumption in the short run but lowers it in the long run.
D)
lowers consumption in the short run but raises it in the long run.
41.
According to the traditional view of government debt (as in the Mundell–Fleming model), if taxes are cut without cutting government spending, then the short-run effects are a(n) ______ of the dollar and a(n) ______ in net exports.
A)
appreciation; increase
B)
appreciation; decrease
C)
depreciation; increase
D)
depreciation; decrease
42.
According to the traditional view of government debt (as in the IS–LM model), if taxes are cut without cutting government spending, then in the short run interest rates will ______ and investment will ______.
A)
increase; increase
B)
increase; decrease
C)
decrease; decrease
D)
decrease; increase
43.
According to supply siders, tax cuts can raise total tax revenue if the tax cuts generate large enough:
A)
decrease in aggregate supply.
B)
increase in aggregate supply.
C)
decrease in the money supply.
D)
increase in the money supply.
44.
Government tax policy can affect aggregate supply as well as aggregate demand, because changes in taxes change the:
A)
supply of money in the economy.
B)
length of the inside lag of fiscal policy.
C)
incentives to work and invest.
D)
tradeoff between inflation and unemployment.
45.
Ricardian equivalence refers to the same impact of financing government:
A)
whether by printing money or raising taxes.
B)
in the long run as in the short run.
C)
whether by debt or taxes.
D)
in an open economy as in a closed economy.
46.
The logic of Ricardian equivalence implies that:
A)
tax cuts do not influence consumer spending but changes in government spending do.
B)
neither tax cuts nor changes in government spending affect consumer spending.
C)
tax cuts combined with future decreases in government spending will decrease consumer spending.
D)
if the government cuts taxes and increases current government spending, consumer spending will increase.
47.
According to the theory of Ricardian equivalence, if consumers are forward-looking, they will view a tax cut combined with no plans to reduce government spending as ______, so their consumption will ______.
A)
additional disposable income; increase.
B)
additional disposable income; remain unchanged.
C)
a rescheduling of taxes into the future; increase.
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