econ quiz 4

More and more nations are facing problems due to their high government debt ratios. What is likely to happen if a country's debt gets too high?

Investors (potential purchasers of government securities) expect that the government may be unable to pay back its loans (securities). Consequently, investors will stop buying government securities or demand very high interest rates.

Which of the following is likely to grow in the long run as a direct result of our growing national debt?

Net interest payments by the government

When looking at how much financial stress a country's government is in compared to other countries, we should look at the following statistic:

The debt as a percentage of total GDP.

Which of the following statements is correct about national debts and/or deficits?

The federal deficit is usually smaller than the federal national debt for any country.

Which of the following situations is most like that of the United States and other industrialized countries?

The national government spends more than it receives in tax revenues. It borrows from domestic and foreign investors in the form of government treasuries. The government pays interest to these investors.

A gold standard helps to keep prices constant because, if implemented properly, it:

forces the Federal Reserve to keep the money supply growth limited.

Which of the following is the most likely outcome of a government running a large deficit and borrowing large amounts of money from domestic and foreign investors?

future taxes will rise.

According to our text, significantly increasing the money supply does the following to the economy in the long run:

harms the economy, because it causes inflation.

According to Classical and Austrian school economists, an increase in the money supply will:

increase inflation in the long run

Which of the following is a consequence of inflation?

inflation leads to higher real income tax rates when tax brackets don't increase with the rate of inflation.

According to our text, a constant money supply, in the long run, results in:

lower prices, and assuming constant nominal incomes, real incomes will increase.

Disadvantages of inflation include:

mal-investments, increase in long term interest rates, a decrease in exports, increase in taxes, a lower savings rate

If the total money supply is $150 during period 1, and the economy produces a total of 10 products, what is the average equilibrium price of each product during period 1? If during period 2 the total money supply increases by $60 so that it is now $210 (and assume that total production remains the same), what is the average equilibrium price during period 2?

period 1: $15. period 2: $21.

If the money supply increases substantially more than production in the economy increases , then the country's price level:

rises.

Considering how much our volume of goods produced has increased during the past several decades, the price level should have fallen drastically over this time. The reason why it has not is because of:

significant increases in the quantity of money

Which of the following is a reason why mal-investments (non-productive investments) occur during inflationary times?

values of existing (non-productive) goods such as houses, land and antiques typically rise more than productive investments during inflationary times.

Some economists claim that falling prices (deflation) will harm the economy. Our text concludes about falling prices that:

when prices fall continuously and consistently and people expect prices to always fall (like with computers, high tech gadgets), then demand and the economy will not be adversely affected.

Let's say a country is 4 years old. In year one the country's government spent $12 and collected $9 in revenue. In year two it spent $14 and collected $11. In year 3 it spent $15 and collected $16. In year 4 it spent $21 and collected $17. What is this country's national debt after these four years?

$9

According to the Bureau of Labor Statistics, between which of the following two years did prices double?

1983 and 2006.

Let's say that a state's (for example, California's) revenues decline and that a budget deficit is inevitable unless changes are implemented. What is the first thing a state will do in this case?

A state would need to lower its spending or raise tax revenue or do a combination of both until its budget is balanced.

Which of the following is correct about increases in the money supply, according to our text?

An increase in the money supply lowers interest rates in the short run, but raises them in the long run.

If during a particular year nominal GDP is the same as real GDP, then according to the definition of the GDP deflator:

Average prices of final goods and services must have stayed the same.

In the United States, which of the following form(s) of government is/are required to balance its (their) budget by law?

Both county and state governments are required to balance their budgets.

As a result of what positive economic condition are falling prices a sign of a healthy economy?

Falling prices that occur as a result of technological growth and an increase in production

What happened to the federal budget during the first Obama administration?

because of the great recession of 2008 and higher spending on homeland security, wars and federal social programs, the budget deficit increased significantly during the first Obama administration.

Hyperinflation is usually caused by a combination of:

too much money in circulation and increased velocity.

According to our text, when the U.S. government borrows funds from the public (by issuing bonds), it:

transfers money from one sector (the private sector) to another (the government sector). This does not add money to our money supply and is not inflationary.