chapter 16

Debt is to deficit as a. money is to income. b. flow is to stock. c. rent is to dividend. d. property is to wealth.

a

Which of the following individuals would be most likely to support a balanced budget amendment to the constitution? a. "Christmas is when children ask Santa Claus for things and their parents pay for them. Deficits is when adults ask government for things and their children pay for them."-Richard Lamm b. "In a boom, inflation can be caused by allowing unlimited credit to support excited enthusiasm of business speculators. But in a slump government expenditure is the only sure means of obtaining quickly a rising output."-J.M. Keynes c. "If we face a recession we should not lay off employees. Employees are not guilty; why should they suffer?"-Akio Morita d. "Underbalancing the budget during a depression is not primarily a deliberate policy but a practical necessity."-Gunnar Myrdal

a

Which of the following is expected to increase aggregate demand in the short run? a. Deficit budget b. Surplus budget c. Zero based budget d. Balanced budget

a

A budget surplus exists when a. Tax receipts < government expenditures + transfers. b. Tax receipts > government expenditures + transfers. c. Government expenditures − transfers > tax receipts. d. Government expenditures > transfers + tax receipts.

b

If the economy is in a recessionary gap, and the government attempts to balance the budget, the effect will be to a. counteract the recession. b. worsen and prolong the recession. c. end the recession sooner. d. increase the level of real GDP.

b

In 2010, which of the following was true regarding the extremely large deficits that the U.S. recently encountered? a. Most politicians and economists argued that the deficit had to be reduced. b. Most politicians argued that the deficit had to be reduced but economists cautioned against this course of action. c. Most economists argued that the deficit had to be reduced but politicians cautioned against this course of action. d. Both politicians and economist cautioned against deficit reduction.

b

Most economists agree that the focus of fiscal policy is to a. plan the economy. b. balance aggregate demand and aggregate supply. c. balance the federal budget. d. balance environmental needs and resources.

b

Suppose that the economy is currently at full employment. All other things being equal, if the government implements expansionary fiscal policy, then the appropriate monetary policy is a. no change from the current policy. b. reduce the growth of the money supply. c. constant growth of the money supply. d. increase the growth of the money supply.

b

The national debt a. is increased by budget surpluses. b. is the value of the government's indebtedness at a moment in time. c. exceeded $20 trillion in 2010. d. All of the above are correct.

b

The purpose of fiscal policy should be to a. balance the budget to be fiscally responsible. b. balance aggregate supply and aggregate demand. c. keep taxes low to keep voters happy. d. minimize government spending to avoid wasting money.

b

Appropriate fiscal policy depends on the other major tool of governmental stabilization policy: a. trade policy. b. tax policy. c. monetary policy. d. labor market policy.

c

Deficit is to debt as a. responsible is to irresponsible. b. increase is to decrease. c. flow is to stock. d. important is to unimportant.

c

If in fiscal year 2010, the federal government receives $2.2 trillion in revenues and spends $3.5 trillion for goods and services, the national debt will a. increase by $2.2 trillion. b. increase by $1.3 trillion. c. decrease by $1.3 trillion. d. decrease by $2.2 trillion.

c

If the U.S. government decided to pay off the national debt by creating money, what would be the most likely effect? a. a substantial reduction in real GDP b. a deflationary collapse c. rapid inflation d. an increase in the trade surplus

c

In 2010 and 2011, many observers were worried that the a. budget would not be balanced and fiscal stimulus would be withdrawn too soon. b. budget would not be balanced and monetary stimulus would be withdrawn too soon. c. budget would be balanced and fiscal stimulus would be withdrawn too soon. d. budget would be balanced and monetary stimulus would be withdrawn too soon.

c

Japanese Prime Minister Ryutaro Hashimoto was called the "Herbert Hoover of Japan" because he a. looked like a very distinguished politician. b. advocated vast public works to combat unemployment. c. advocated budget deficit reduction in the midst of a recession. d. advocated easier monetary policy and lower interest rates to combat recession.

c

The budget deficit a. is the value of the government's indebtedness at a moment in time. b. was $13.5 trillion in fiscal 2010. c. is the amount by which the government's expenditures exceed receipts during a specific time period. d. All of the above are correct.

c

The deficit can be defined in simple terms as a. Tax receipts − government expenditures + transfers. b. Tax receipts + government expenditures + transfers. c. Government expenditures + transfers − tax receipts. d. Government expenditures − transfers − tax receipts.

c

To maintain a balanced budget during the sag in personal spending in 2008 could cause a a. further increase in aggregate demand and inflation. b. further increase in aggregate demand and unemployment. c. further decrease in aggregate demand and a recession. d. further decrease in aggregate demand and inflation.

c

A budget deficit is best defined as the a. shortage of spending power created by a government spending cut. b. shortage of spending power created by a tax increase. c. accumulation of past debt that has not been covered by taxes. d. amount by which a government's expenditures exceed receipts during a specific time period.

d

A budget surplus is defined as the amount that the a. government owes to lenders at any moment in time. b. government spends in any time period. c. government's expenditures exceed receipts in any time period. d. government's receipts exceed expenditures in any time period.

d

If the President and Congress agree to balance the budget during a recession, then the appropriate monetary policy is a. no change from the current policy. b. reduce the growth of the money supply. c. constant growth of the money supply. d. increase the growth of the money supply.

d

If the U.S. government decides to eliminate a budget surplus by reducing taxes, the most likely effect would be a. falling prices. b. a reduction in the trade deficit. c. an increase in unemployment. d. upward pressure on prices.

d

In 2008 and 2009, the budget deficit increased substantially because of a. the weak economy. b. extraordinary spending. c. reduced tax receipts. d. all of the above

d

In 2009, the U.S. had a budget deficit of approximately a. $161 billion. b. $459 billion. c. $800 billion. d. $1.4 trillion.

d

Suppose that the economy is currently at full employment. All other things being equal, if central bank implements contractionary policy, then the appropriate fiscal policy is to a. increase taxes. b. reduce government spending. c. balance the budget. d. increase a budget deficit.

d

Suppose that the economy is currently at full employment. All other things being equal, if the government implements restrictive policies then the appropriate monetary policy is a. no change from the current policy. b. reduce the growth of the money supply. c. constant growth of the money supply. d. increase the growth of the money supply.

d

The government should not attempt to balance the budget if a. the economy is in a recessionary gap. b. actual GDP is below full-employment GDP. c. unemployment is rising. d. All of the above are correct.

d

The main goal of fiscal policy should always be to a. generate a budget deficit. b. balance the budget. c. balance C + I with government spending. d. balance aggregate demand with aggregate supply.

d