Question 1

In the long run, what effect does a government's deficit spending have on equilibrium real Gross Domestic Product (GDP) ?

Accepted Answer

A)   Government deficit spending will increase equilibrium real Gross Domestic Product (GDP) .
B)   Deficit spending will decrease the nation's equilibrium real Gross Domestic Product (GDP) .
C)   Higher government deficits will not raise equilibrium Gross Domestic Product (GDP)  above the full-employment level.
D)   Higher government deficits will raise equilibrium Gross Domestic Product (GDP)  above the full-employment level and also have an inflationary effect.

Question 2

The gross public debt is the

Accepted Answer

A)   amount of U.S. paper currency and coins in circulation.
B)   difference between current government expenditures and tax revenues.
C)   ratio of past deficits to past surpluses.
D)   total of all accumulated deficits and surpluses.

Question 3

When government expenditures are greater than tax revenues

Accepted Answer

A)   there will be budget deficit.
B)   there will be budget surplus.
C)   automatic stabilizers do not kick in.
D)   the public debt will be reduced.

Question 4

Ceteris paribus, deficit spending results in higher interest rates, which can

Accepted Answer

A)   accelerate growth in investment spending.
B)   ultimately have a positive impact on productivity gains and society's standard of living.
C)   increase the wealth of future generations.
D)   crowd out private investment.

Question 5

Which of the following will NOT cause the public debt to change?

Accepted Answer

A)   Collection by the government of $200 billion more in taxes than it spends
B)   Government budget deficit
C)   Government budget surplus
D)   Balanced budget

Question 6

According to the text, approximately what percentage of U.S. net public debt is held by foreign residents?

Accepted Answer

A)   20%
B)   50%
C)   800%
D)   90%

Question 7

In the long run, what effect does a government's deficit spending have on equilibrium real Gross Domestic Product (GDP) ?

Accepted Answer

A)   The government's deficit spending will increase equilibrium real Gross Domestic Product (GDP) .
B)   Deficit spending will decrease the nation's equilibrium real Gross Domestic Product (GDP) .
C)   Higher government deficits will not raise equilibrium Gross Domestic Product (GDP)  above the full-employment level.
D)   Equilibrium real Gross Domestic Product (GDP)  will increase beyond the full-employment level and there will also be an inflationary effect.

Question 8

Which of the following is true when a budget deficit exists?

Accepted Answer

A)   Government expenditures exceed tax revenues.
B)   Tax revenues exceed government expenditures.
C)   A trade surplus exists.
D)   Dissaving exists.

Question 9

What is the short-run effect of increased deficit spending on an economy experiencing a recessionary gap?

Accepted Answer

A)   Aggregate demand increases, and the gap closes.
B)   Aggregate supply increases, closing the gap.
C)   Aggregate demand decreases, and the gap widens.
D)   Aggregate demand will increase, creating an inflationary gap.

Question 10

By approximately how much would the federal government have to raise each worker's annual taxes to eliminate the current federal budget deficit?

Accepted Answer

A)   Between $50 and $100 per year
B)   Between $500 and $1,000 per year
C)   Between $1,500 and $2,500 per year
D)   Between $5,000 and $7,000 per year

Question 11

Gross public debt minus all government interagency borrowing is

Accepted Answer

A)   government budget deficit.
B)   net public debt.
C)   U.S. Treasury bonds.
D)   an entitlement.

Question 12

The difference between the gross public debt and the net public debt is that the

Accepted Answer

A)   gross public debt includes entitlements while the net public debt does not.
B)   gross public debt is based on budget deficit while the net public debt is not based on budget deficits.
C)   gross public debt includes government interagency borrowing while the net public debt does not.
D)   the gross public debt is expressed as a percentage of GDP while the net public debt is not.

Question 13

If the government spends more than it receives in taxes during a given interval, then the result is

Accepted Answer

A)   a balanced budget.
B)   the gross public debt.
C)   the net public debt.
D)   a government budget deficit.

Question 14

Historic data indicate that there is usually a ________ relationship between trade deficits and federal government budget deficits.

Accepted Answer

A)   positive
B)   zero
C)   negative
D)   fluctuating

Question 15

Which of the following statements is correct?

Accepted Answer

A)   Since the mid-1940s, expenditures on national defense have increased considerably as a percentage of total federal government spending.
B)   Since the mid-1940s, expenditures on income security and health programs have increased considerably as a percentage of total federal government spending.
C)   Taken together, expenditures on national defense and on income security and health programs now account for less than half of all federal government spending.
D)   Expenditures on national defense now account for more than twice as much federal government spending as expenditures on income security and health programs.

Question 16

What is the difference between the short run and the long run when there is full employment and the government engages in deficit spending?

Accepted Answer

A)   Real GDP will increase in both the short run and the long run.
B)   Real GDP will increase in the long run but not the short run.
C)   Real GDP will increase in the short run but not the long run.
D)   Real GDP will not increase in either the long run or the short run.

Question 17

Since 2001, the U.S. government budget deficit

Accepted Answer

A)   has been approximately equal to 10% of U.S. GDP.
B)   as a percentage of U.S. GDP has increased steadily each year.
C)   as a percentage of U.S. GDP has decreased steadily each year.
D)   none of the above.

Question 18

Which of the following statements is false?

Accepted Answer

A)   The federal budget deficit in 2004 was about 4 percent of the GDP.
B)   A budget deficit of $25 billion in a given year increases the public debt by $25 billion.
C)   The public debt of $25 billion is the accumulated debt of all U.S. individuals, firms, and institutions.
D)   During the past five years, the U.S. public debt has been increasing.

Question 19

If the government's spending exactly equals its revenues during a budget year, that government is

Accepted Answer

A)   running a budget deficit.
B)   experiencing a budget surplus.
C)   balancing its budget.
D)   paying off its public debt.

Question 20

How does the federal government finance a budget deficit?

Accepted Answer

A)   It redeems its IOUs.
B)   It purchases U.S. Treasury bonds.
C)   It cuts spending on entitlement programs.
D)   It borrows funds by selling Treasury bonds.

Exam 14: Deficit Spending and the Public Debt

The gross public debt is the

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The difference between the gross public debt and the net public debt is that the

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What is the difference between the short run and the long run when there is full employment and the government engages in deficit spending?

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If the government spends more than it receives in taxes during a given interval, then the result is

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If the government's spending exactly equals its revenues during a budget year, that government is

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Gross public debt minus all government interagency borrowing is

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Which of the following statements is false?

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Which of the following is true when a budget deficit exists?

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What is the short-run effect of increased deficit spending on an economy experiencing a recessionary gap?

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When government expenditures are greater than tax revenues

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Which of the following will NOT cause the public debt to change?

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According to the text, approximately what percentage of U.S. net public debt is held by foreign residents?

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In the long run, what effect does a government's deficit spending have on equilibrium real Gross Domestic Product (GDP) ?

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Ceteris paribus, deficit spending results in higher interest rates, which can

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How does the federal government finance a budget deficit?

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In the long run, what effect does a government's deficit spending have on equilibrium real Gross Domestic Product (GDP) ?

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Since 2001, the U.S. government budget deficit

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Which of the following statements is correct?

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Historic data indicate that there is usually a ________ relationship between trade deficits and federal government budget deficits.

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By approximately how much would the federal government have to raise each worker's annual taxes to eliminate the current federal budget deficit?

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