Econ 1A - Quiz 4

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How would you characterize the U.S. experience with deficits and surpluses since 1970?

b. We have usually run deficits year after year, with only a brief period of surpluses in the late 1990s

To protect themselves from inflation, German consumers during the hyperinflation tried to spend their money ______. This caused velocity to ____. (Choose the answer that fills in the two blanks)

e. Faster; increase

What is the difference between a deficit and debt?

Deficit is a flow, that is, the amount that expenditures exceed revenues in a single year; debt is a stock, that is, the accumulation of past deficits

What did (do) mercantilists and neo-mercantilists think about competitive markets?

They did not like or trust competitive markets

What does the Quantity Theory of Money argue about velocity, or how did they treat velocity during "normal" times (i.e., not hyperinflations)?

They treated velocity as a magnitude that did change slowly over time, but it did not change simply because the money supply changed

From 1995 to 2005, the percent change in real net public debt per capita was ____ %. From 2005 to 2013, the percent change in real net public debt per capita was _____ %. (Choose the answer that fills in the two blanks.)

a. -6.7%; and +132.7%

What are entitlements?

a. Government payments that are guaranteed to any a person who qualifies to receive them

Was the Kennedy-Johnson Tax Cut of 1964 a discretionary fiscal policy or an automatic fiscal policy?

a. It was a discretionary policy

According to both mercantilists and neo-mercantilists, one country's economic progress was likely to go hand in hand with another country's

a. Loss or decline

Throughout history, most countries, companies, and corporations have acquired debt. Unless it is excessive, debt is neither inherently good nor bad. The more interesting and relevant question relating to the merits of debt is

a. What was the debt incurred for?

Do neo-mercantilists try to hide their protectionist policies in free trade rhetoric?

a. Yes

In the U.S. and other developed countries, the national debt is measured in billions and trillions of dollars (or the equivalent in other currencies). Money of these magnitudes is almost impossible to comprehend. The best or most meaningful way to measure national debt is to calculate

a. debt as a percentage of GDP

In 1960, _____ % of federal spending was for entitlements. Today, _______ % of federal government expenditures is for entitlements.

b. 20%; and 60%

Suppose an economy has nominal GDP of $240 billion, a money supply of $60 billion, an interest rate of 10%, and an unemployment rate of 8%. What is its velocity?

b. 4

What type of international trade balance or scenario have both mercantilists and neo-mercantilists been preoccupied or obsessed with obtaining? (Be specific - don't simply say "a good balance," etc.)

b. Exporting a lot more than your country imports

Did German real GDP increase during the hyperinflation in 1923?

b. No

Do neo-mercantilists advocate bullionism?

b. No

According to the Quantity Theory, what would happen to prices if the money supply was increasing at the rate of 9 percent per year and real GDP was growing at 6 percent?

b. Prices would increase by 3%

The German Hyperinflation came to a halt on November 1, 1923 when the German government introduced a new currency. While this ended the German Hyperinflation, we have often seen in other hyperinflations (or similar inflations) that rampant inflation continues even after a currency reform - except now denominated in a new currency. Why was the German currency reform successful at ending the German Hyperinflation? (Hint: You may want to refer to the Quantity Theory.)

b. The German government and central bank stopped increasing the money supply when the new currency was introduced

What does the Quantity Theory of Money argue about velocity, or how did they treat velocity during "normal" times (i.e., not hyperinflations)?

b. They treated velocity as a magnitude that did change slowly over time, but it did not change simply because the money supply changed

Which of the following is an example of an automatic stabilizer?

b. Unemployment insurance

What portion of the net public debt is held by foreigners?

c. 50%

Suppose that you are asked what caused the German Hyperinflation? Your best answer would be that the massive increase in prices was caused by

c. A massive increase in the money supply

What is the net public debt?

c. Gross debt minus inter-agency borrowing

What is expansionary fiscal policy?

c. Reducing taxes or increasing government expenditure

Federal net public debt as a percent of GDP was about ______ % in 2013.

d. 77%

Automatic stabilizers cause government revenues to ________ during a recession and cause government expenditures to ___________ during a recession. (Choose the answer that fills in the two blanks)

d. Decrease; increase

In a stationary (that is, non-growing) economy, the Quantity Theory argues that a 14 percent increase in the money supply will cause prices to (be as specific as possible).

d. Increase by 14%

Which European country in the mercantilist period was generally considered to be the most successful?

d. Spain


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