Chapter 17

If the debt of the U.S. federal government in 2016 was divided equally among the people in the United States, then the debt per person would equal approximately:

$44,000.

To force politicians to judge whether government spending is worth the costs, some economists have argued for:

a balanced-budget rule for fiscal policy.

Assume that a government has a balanced budget when the economy is at full employment. If the economy then enters a recession, with no change in tax or spending laws, then the budget of the government is most likely to:

be in deficit.

The cyclically adjusted budget deficit:

estimates what the deficit would be if the economy were operating at the natural rate of output.

Each of the following changes would allow the measured budget deficit to provide a truer picture of fiscal policy except:

excluding some liabilities altogether.

Government tax policy can affect aggregate supply as well as aggregate demand because changes in taxes change the:

incentives to work and invest.

A debt-financed tax cut will ______ current consumption in the traditional view and ______ current consumption in the view of Ricardian equivalence.

increase; not change

When the federal government incurs additional debt to acquire an asset, under current budgeting procedures the deficit ______, while under capital budgeting procedures the deficit ______.

increases; does not change

According to the traditional view of government debt, if taxes are cut without cutting government spending, then the international effect initially will be a capital ______ and a trade ______.

inflow; deficit

Monetary policy is linked to fiscal policy when government spending is financed by:

printing money.

A deficit adjusted for inflation should include only government spending used to make _____ interest payments.

real

Given a reduction in income tax withheld, but no change in income tax owed, households that act according to Ricardian equivalence would ______ the extra take-home pay, while those facing binding borrowing constraints would ______ the extra-take home pay.

save; spend

Assume that nobody cares about the economic well-being of future generations. Then the Ricardian equivalence view of the effect of debt-financed tax cuts is:

still partially valid because most of the taxpayers will live and pay taxes for a substantial number of years after the tax cut.

According to the traditional viewpoint of government debt, a tax cut without a cut in government spending:

stimulates consumer spending in the short run and reduces national saving.

Government debt equals the:

sum of past budget deficits and surpluses.

If government debt is not changing, then:

the government's budget must be balanced.

Ricardian equivalence refers to the same impact of financing government:

whether by debt or taxes.

Holding other factors constant, the ratio of government debt to GDP can decrease as a result of any of the following changes except:

decreases in tax revenues.