Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debts, Interest Rates, and Crowding Out
178. If the government ran a major deficit, and there was no noticeable effect on the level of GDP, this could be taken as
evidence of
a.
crowding-in.
b.
structural deficit.
c.
crowding-out.
d.
monetary policy ineffectiveness.
c
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debts, Interest Rates, and Crowding Out
179. A budget deficit will be most inflationary if the aggregate
a.
demand curve is very steep.
b.
demand curve is very flat.
c.
supply curve is very flat.
d.
supply curve is very steep.
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debts, Interest Rates, and Crowding Out
180. A budget deficit will be least inflationary if the aggregate
a.
demand curve is very steep.
b.
demand curve is very flat.
c.
supply curve is very flat.
d.
supply curve is very steep.
c
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debts, Interest Rates, and Crowding Out
181. If a budget deficit increases interest rates, it is possible that investment will
a.
fall, leading to a larger capital stock.
b.
fall, so that there is a smaller capital stock.
c.
rise, because investment is directly related to interest rates.
d.
rise, because investment is more attractive when interest rates are higher.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debts, Interest Rates, and Crowding Out
182. Crowding out can best be defined as:
a.
private investment increases growth rates and decreases deficits.
b.
restrictive monetary policy raises interest rates and decreases investment.
c.
government deficits increase interest rates and decrease investment.
d.
consumption spending increases interest rates and decreases investment.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debts, Interest Rates, and Crowding Out
183. If crowding out occurs, the Main Burden of the debt is
a.
b.
c.
d.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debts, Interest Rates, and Crowding Out
184. Crowding in can be defined as
a.
an increase in the budget deficit increases demand so that investment increases.
b.
tax incentives on investment encourage capital formation, an increase in aggregate supply.
c.
consumption rises in a recovery, which increases demand for investment.
d.
the budget deficit falls enough to lower interest rates to stimulate investment.
a
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debts, Interest Rates, and Crowding Out
185. A serious burden of a budget deficit and an increase in the national debt comes on the supply side because large
budget deficits
a.
discourage consumption and therefore lead to production cutbacks.
b.
lead to lower interest rates and therefore to excessive optimism by consumers and businesspeople.
c.
discourage investment and therefore may reduce the growth of the nation’s capital stock.
d.
discourage foreign investment and therefore limit employment opportunities.
c
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
186. Future generations will be hurt by a high national debt if incurring the debt
a.
was done to pay Social Security recipients.
b.
resulted in heavy commitments to bail out business firms.
c.
increased formation of capital.
d.
slowed the formation of capital.
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
187. A federal budget deficit places a genuine burden on future generations when the
a.
crowding-out effect is stronger than the crowding-in effect.
b.
crowding-in effect is stronger than the crowding-out effect.
c.
crowding-out and crowding-in effects work in opposite directions.
d.
crowding-out and crowding-in effects operate in the same direction.
a
Difficult
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
188. A deficit will burden future generations
a.
because the obligation to pay it off must be faced sooner or later.
b.
if it produces higher interest rates when the economy is near full employment.
c.
because future generations will have to pay taxes to fund the interest payments to Americans who hold the
debt.
d.
All of the above are correct.
Difficult
DISC: Monetary and fiscal policy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
189. The remarkable fact about the structural deficit after 1983 was that it was
a.
very high.
b.
very small for a period of economic recovery.
c.
very high during peacetime.
d.
high during Republican administrations.
c
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
190. Which of the following is not true with regard to the burden of the U.S. national debt?
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.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
191. The argument that the national debt imposes a burden on future generations becomes more compelling as
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.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
192. Is the national debt a burden to future generations?
a.
No, as long as foreigners own a significant share of the national debt.
b.
No, as long as the national debt is owned purely by U.S. citizens.
c.
Yes, debt is always a burden to future generations.
d.
Yes, unless foreigners increase their share of the national debt.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
193. By 2007 the deficit
a.
was out of control and increased substantially soon thereafter.
b.
seemed under control but increased substantially soon thereafter.
c.
was out of control but decreased substantially soon thereafter.
d.
seemed under control and decreased substantially soon thereafter.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
194. Economists who argue in favor of rapid deficit reduction claim that deficit reduction will
a.
reduce crowding in, reduce interest rates, and increase AS.
b.
stimulate AD and productivity.
c.
trigger crowding in, increase investment, and increase AS.
d.
reduce crowding out, increase investment, and increase AS.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
195. Proponents of deficit reduction argue that the principal effect will be an
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.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
196. In the short run, the dominant effect of deficit reduction causes an
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.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
197. Higher interest rates and, therefore, a decrease in investment spending is most likely to be caused by which policy
mix?
a.
deficit reduction and expansionary monetary policy
b.
larger deficits and contractionary monetary policy
c.
larger deficits and expansionary monetary policy
d.
deficit reduction and contractionary monetary policy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
198. The Troubled Asset Relief Program (TARP) totaled ____ and the fiscal stimulus package of 2009 totaled ____.
a.
$1.4 trillion; $800 billion
b.
$1.4 trillion; $700 billion
c.
$700 billion; $800 billion
d.
$700 billion; $1.4 trillion
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Main Burden of the National Debt: Slower Growth
199. The blame for failing to address the budget deficits of the 1980s and early 1990s
a.
is clearly the fault of the Republican administrations.
b.
is clearly the fault of the Democratic Congresses.
c.
is a political question rather than an economic question.
d.
is an economic question rather than a political question.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Economics and Politics of the U.S. Budget Deficit
200. In the late 1990s, the more than expected increases in tax revenues were the result of
a.
rapid economic growth.
b.
rapid increases in the national debt.
c.
rising rates of inflation, and therefore, nominal incomes.
d.
rising balance of trade surpluses and the import duties they generated.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Economics and Politics of the U.S. Budget Deficit
201. Regarding structural deficits, which of the following assertions is true?
a.
The structural deficit depends on the state of the economy.
b.
The structural deficit is basded on actual expenditures and receipts.
c.
The structural deficit change only when policy changes.
d.
The structural deficit changes when GDP changes.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
202. Very recently, the debt-to–GDP ratio has been:
a.
higher than usual.
b.
lower than usual.
c.
stabilized.
d.
volatile.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Issue Revisited: Is the Budget Deficit Too Large?
203. Define the following terms and explain their importance to the study of macroeconomics:
a.
structural budget deficit
b.
monetize the deficit
c.
crowding out
d.
inflation accounting
e.
mix of fiscal and monetary policy
business cycle, the actual budget deficit may be below the structural budget deficit.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Interpreting the Budget Deficit or Surplus
204. What is the difference between the deficit and the debt?
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Deficits and Debt: Terminology and Facts
205. Why do economists view structural budget deficit as a good measure of the direction of the fiscal policy?
206. Differentiate between “off-budget” deficit and the “on-budget” deficit.
207. 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.
208. What is “crowding out”? Why is it important in discussions of fiscal policy? Use an appropriate diagram to illustrate
your answer.
209. What is “crowding-in” effect? Explain the factors which determine the strength of the crowding in effect.
210. List three bogus arguments about the “burden of the debt,” and point out the errors in each of the arguments.
211. 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?
212. 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.
213. Give some arguments for and against a balanced budget requirement.
214. Whether or not deficits create a burden depends on how and why the government incurred the deficits in the first
place. Explain.
215. The federal budget went $161 billion in fiscal year 2007 to $1 trillion in the next two to three years. What are the
main factors that contributed to this increase?