Deck 17: Macroeconomic Policy Debates

Question 1

A surplus is defined as

A) the excess of total expenditures over total revenues.
B) the excess of total revenues over total expenditures.
C) government spending plus transfer payments.
D) the sum of all past borrowing by the government.

Answer 1

the excess of total revenues over total expenditures.

Question 2

In the 1980s and most of the 1990s, the federal government

A) was balanced.
B) ran small deficits.
C) ran large deficits.
D) ran small surpluses.

Answer 2

ran large deficits.

Question 3

The standard way to measure the effects of debt in an economy is to look at the stock of debt relative to

A) total government spending.
B) federal tax revenue.
C) GDP.
D) the total budget.

Answer 3

GDP.

Question 4

What would happen to a government's total debt if it ran a budget deficit?

A) Spending would decrease.
B) Spending would increase.
C) Total debt would increase.
D) Total debt would decrease.

Question 5

In the United States, the debt burden tends to rise during ________ and fall during ________.

A) peacetime; wartime
B) wartime; peacetime
C) peacetime; wartime, but only if the war lasts several years.
D) wartime, but only if the war is of short duration; peacetime

Question 6

If government spending is $900 billion while government revenue is $600 billion, the government is said to have a

A) $300 billion budget surplus.
B) $300 billion budget deficit.
C) $1,500 billion budget deficit.
D) $600 billion budget deficit.

Question 7

Governments run a balanced budget when

A) their debt is interest-free.
B) transfer payments equal zero.
C) revenues exceed spending.
D) revenues equal spending.

Question 8

Suppose the government's initial debt is $400 billion. If for the next three years the government runs deficits of $150, $125, and $200 billion, the government's additional debt at the end of the three years will be

A) -$50 billion.
B) $50 billion.
C) $475 billion.
D) $900 billion.

Question 9

If a government had a debt of $300 billion and then ran deficits of $200 billion each year for the next three years, by the end of the third year its total debt would be

A) -$300.
B) $300 billion.
C) $600 billion.
D) $1,200 billion.

Question 10

A deficit is defined as

A) the excess of total expenditures over total revenues.
B) the excess of total revenues over total expenditures.
C) government spending plus transfer payments.
D) the sum of all past borrowing by the government.

Question 11

Government expenditures are defined as

A) the excess of total expenditures over total revenues.
B) the excess of total revenues over total expenditures.
C) government spending on goods and services plus transfer payments.
D) the sum of all past borrowing by the government.

Question 12

Suppose the government's initial debt is $425 billion. If for the next three years the government runs deficits of $150, $125, and $200 billion, the government's total debt at the end of the three years will be

A) -$50 billion.
B) $50 billion.
C) $475 billion.
D) $900 billion.

Question 13

If government spending is $650 billion while government revenue is $950 billion, the government is said to have a

A) $300 billion budget deficit.
B) $1,600 billion budget balance.
C) $300 billion budget surplus.
D) $950 billion budget deficit.

Question 14

The government debt is defined as

A) the excess of total expenditures over total revenues.
B) the excess of total revenues over total expenditures.
C) government spending on goods and services plus transfer payments.
D) the sum of all past deficits and surpluses.

Question 15

The sum of all budget deficits and surpluses is known as the

A) fiscal year.
B) budget balance.
C) government expenditure.
D) government debt.

Question 16

Transfer payments include

A) Social Security.
B) dividends.
C) consumption taxes.
D) open market sales.

Question 17

Suppose the government's initial debt is $350 billion and that during the next two years the government runs deficits of $90 and $40 billion. If during the third year the government has a $70 billion surplus, the government's total debt at the end of the three years will be

A) $60 billion.
B) $200 billion.
C) $410 billion.
D) $550 billion.

Question 18

If government spending is $6.2 trillion while government revenue is $6.2 trillion, the government is said to have a

A) budget deficit.
B) budget surplus.
C) balanced budget.
D) balanced debt.

Question 19

In the year ________, for the first time in 30 years, the federal government ran a surplus.

A) 1980
B) 1985
C) 1990
D) 1998

Question 20

Suppose the government's initial debt is $350 billion and that during the next two years the government runs deficits of $90 and $40 billion. If during the third year the government has a $70 billion surplus, the government's additional debt at the end of the three years will be

A) $60 billion.
B) $200 billion.
C) $410 billion.
D) $550 billion.

Question 21

Suppose the government has a $440 billion budget deficit. If the government borrows $330 billion to finance this deficit and finances the rest by printing money, the amount of new money created will be

A) $90 billion.
B) $110 billion.
C) $440 billion.
D) $770 billion.

Question 22

During recessions, unemployment ________ while the budget deficit as a percentage of GDP ________.

A) decreases; decreases
B) increases; increases
C) increases; decreases
D) decreases; increases

Question 23

Automatic stabilizers were clearly in evidence during the recession of 2007-2009 as

A) tax revenues increased.
B) tax revenues decreased.
C) transfer payments decreased.
D) tax revenues and transfer payments both decreased.

Question 24

If the Federal Reserve purchases newly issued government bonds, the government is said to be

A) borrowing from the public.
B) fiscalizing the deficit.
C) monetizing the deficit.
D) borrowing from itself.

Question 25

As a result of the large surpluses following the Clinton Administration, what did President George W. Bush do in 2001, which reduced the surplus?

A) increased government spending
B) made substantial cuts in taxes
C) raised the interest rate to reduce spending
D) lowered the interest rate to stimulate spending

Question 26

Suppose the government has a $900 billion budget deficit. If the government borrows $560 billion to finance this deficit and finances the rest by printing money, the amount of new money created will be

A) $340 billion.
B) $560 billion.
C) $900 billion.
D) $1,460 billion.

Question 27

If a government runs a deficit it can cover the gap by

A) increasing transfer payments.
B) printing money.
C) purchasing bonds.
D) lowering the discount rate.

Question 28

The debt burden in the United States was highest during

A) World War I.
B) World War II.
C) the 1960s.
D) the 1980s.

Question 29

After experiencing its first budget surplus in 30 years in 1998, for how many consecutive years following that did the budget remain in a surplus state?

A) 1
B) 2
C) 3
D) 4

Question 30

The government borrows money to cover budget deficits by

A) purchasing bonds.
B) petitioning the International Monetary Fund.
C) filling out a loan application at Citibank.
D) selling bonds.

Question 31

To measure the effect of debt in an economy, economists use a standard measure which involves the ________ relative to the GDP.

A) stock market activity
B) outstanding government bonds
C) stock of debt
D) capital stock of equipment

Question 32

The U.S. debt to GDP ratio in 2011 was

A) less than 20 percent.
B) 42.4 percent.
C) 67.7 percent.
D) greater than 85 percent.

Question 33

The federal government ran a budget deficit of approximately ________ in fiscal year 2010.

A) $250 billion
B) $800 billion
C) $1.3 trillion
D) $14 trillion

Question 34

Suppose the government has a $1.2 trillion budget deficit. If the government borrows $1.2 trillion to finance this deficit and finances the rest by printing money, the amount of new money created will be

A) $0.
B) $600 billion.
C) $1.2 trillion.
D) $2.4 trillion.

Question 35

During 2008 and 2009, the debt to GDP ratio in the United States

A) fell to its lowest level since World War I.
B) is the highest it has been since the founding of the country.
C) rose to its highest level since World War II.
D) remained relatively unchanged, as it has since the mid 1970s.

Question 36

If there was a federal budget surplus it would make it possible to

A) reduce the national debt.
B) increase spending on priorities.
C) decrease taxes in order to improve the equity and efficiency of the tax system.
D) any of the above

Question 37

President Obama's stimulus package in 2009 included

A) tax increases and decreases in government spending.
B) new tax cuts and increases in government spending.
C) increases in government spending but no change in taxes.
D) new tax cuts but no change in government spending.

Question 38

Suppose the government has a $375 billion budget deficit. If the government creates $225 billion of new money to finance this deficit and finances the rest by borrowing, the amount borrowed from the public will be

A) $150 billion.
B) $225 billion.
C) $375 billion.
D) $600 billion.

Question 39

During the financial crisis of 2008, the Fed

A) attempted to stabilize the economy by selling over $1 trillion in securities.
B) engaged in massive purchases of securities, adding over $1 trillion to its balance sheet.
C) stopped its purchase of mortgage-backed securities to reduce its balance sheet.
D) was careful to balance its purchase and sale of securities so as not to drastically change its balance sheet.

Question 40

The government deficit is equal to

A) new borrowing from the public minus new money created.
B) new borrowing from the public plus new money created.
C) new money created minus new borrowing from the public.
D) new borrowing from the public divided by new money created.

Question 41

Suppose the actual budget deficit increases when the economy falls into a recession. This is an indication that

A) monetary policy was not used during the recession.
B) fiscal policy was not used during the recession.
C) monetary policy was used during the recession.
D) fiscal policy was used during the recession.

Question 42

Suppose the public increase the level of savings in anticipation of higher future taxes to service the national debt. This is an example of

A) Reaganomics.
B) Smithsonian equivalence.
C) Ricardian equivalence.
D) Monetary equivalence.

Question 43

Excessive creation of new money to finance a government budget deficit can lead to

A) disinflation.
B) deflation.
C) stagflation.
D) hyperinflation.

Question 44

Suppose the government has a $180 billion budget deficit. If the government creates $95 billion of new money to finance this deficit and finances the rest by borrowing, the amount borrowed from the public will be

A) $85 billion.
B) $95 billion.
C) $180 billion.
D) $275 billion.

Question 45

Financing government expenditure through deficits rather than through taxes will lead to higher spending if

A) people are more aware of taxes than they are of deficits.
B) people are more aware of deficits than they are of taxes.
C) it results in crowding out.
D) it results in crowding in.

Question 46

The policy of running deficits and only gradually increasing taxes later to service the debt is referred to as

A) crowding out.
B) tax-smoothing.
C) generational accounting.
D) Ricardian equivalence.

Question 47

Prior to the recession which began in late 2007, the Federal Reserve purchased ________ of the government budget deficit.

A) none
B) a small portion
C) about 50 percent
D) all

Question 48

Government debt "crowds out" private investment because

A) the government can order the public to buy bonds.
B) the government and private firms compete in the same market for savings.
C) private firms stop borrowing money when the government enters the market.
D) the government's increased demand for loans decreases interest rates.

Question 49

Automatic stabilizers dampen economic fluctuations during recessions because ________ decrease while ________ increase.

A) unemployment rates; inflation rates
B) tax payments; tax revenues
C) tax revenues; tax payments
D) tax payments; transfer payments

Question 50

Automatic stabilizers are changes in ________ that occur automatically as economic activity changes.

A) taxes and transfer payments
B) unemployment
C) inflation
D) the money supply

Question 51

The burdens of the national debt generally fall on

A) past generations.
B) the present generation.
C) future generations.
D) all of the above.

Question 52

If the Federal Reserve purchases newly issued government debt

A) the effect is the same as borrowing from the public.
B) existing money is destroyed.
C) new money is created.
D) the money supply decreases.

Question 53

If the Federal Reserve purchases newly issued government debt

A) the effect is the same as borrowing from the public.
B) the effect is as if the Treasury had printed money to cover the deficit.
C) existing money is destroyed.
D) the money supply decreases.

Question 54

Ricardian equivalence is the proposition that

A) government expenditure should only be financed by issuing new debt.
B) it does not matter whether government expenditure is financed by taxes or debt.
C) it does not matter whether government expenditure is financed by creating new money or issuing debt.
D) government expenditure should only be financed by taxes.

Question 55

Government debt ________ the amount of savings available to firms and thus ________ the amount of capital in the economy.

A) increases; increases
B) decreases; increases
C) increases; decreases
D) decreases; decreases

Question 56

Monetizing the budget deficit

A) leads to increases in the money supply.
B) creates a full-employment deficit that exceeds the actual deficit.
C) occurs when the Treasury sells bonds to businesses.
D) helps stabilize the economy.

Question 57

A constitutional balanced budget amendment would

A) require that federal expenditures equal revenues (excluding borrowing).
B) divide the federal budget into a capital budget and an operating budget.
C) require a majority vote of Congress to authorize spending increases.
D) require that the federal government maintain a balanced operating budget only.

Question 58

Which of the following illustrates a burden of the national debt?

A) A large debt decreases the amount of capital, thereby decreasing future incomes.
B) Future generations will have to pay lower taxes to finance the national debt.
C) The current generation receives a higher level of government services.
D) The current generation pays a higher level of taxes.

Question 59

Budget deficits inevitably lead to inflation in

A) nations that can easily borrow from the public.
B) nations that are unable to borrow from the public.
C) budget deficits have no effect on inflation.
D) small nations.

Question 60

Suppose the actual budget deficit remains unchanged when the economy falls into a recession. This is an indication that

A) monetary policy was not used during the recession.
B) fiscal policy was not used during the recession.
C) monetary policy was used during the recession.
D) fiscal policy was used during the recession.

Question 61

When a government chooses to have a zero deficit with regards to revenues and spending, it is operating with what kind of budget?

A) a conservative budget
B) a slow economy budget
C) a taxpayer-based budget
D) a balanced budget

Question 62

Recall the Application about why the U.S. federal government took over the debt of the state governments in the late 1700s to answer the following question(s).
According to this Application, in exchange for the federal government absolving their debts, the states were willing to give up their ability to raise revenue from collecting

A) import tariffs.
B) income taxes.
C) property taxes.
D) all of the above

Question 63

Taking some types of spending "off budget" means

A) not counting that spending as part of the official budget.
B) borrowing to finance it instead of using tax revenue.
C) eliminating that spending.
D) financing the spending by special one-time taxes.

Question 64

Even though a high portion of the public debt is held by older and wealthy individuals or institutions, the debt is paid for by increased taxes on

A) only those holding the actual debt.
B) all taxpayers.
C) those who invest in the stock market.
D) purchasers of gasoline and luxury items.

Question 65

To help pull an economy out of a recession and put additional income in the hands of the public, a government can force its expenditures to ________ its revenues and create a ________.

A) reduce; deficit
B) exceed; deficit
C) stimulate; depression
D) exceed; special taxes

Question 66

In bringing an economy out of a recession, a government will often resort to ________ fiscal policies, which often results in budget deficits.

A) innovative
B) contractionary
C) expansionary
D) conservative

Question 67

What does the U.S. Treasury issue to finance the deficit?

A) tax increase notices
B) government bonds
C) new regulations on spending
D) directives to lower unemployment

Question 68

When a government must operate on a balanced budget, it means that there is no ________ or ________.

A) borrowing; printing of money
B) unemployment; special taxes
C) surplus; deficit
D) bonds being issued; purchased

Question 69

When the government prints more money to finance debt, it is actually creating a situation that could result in

A) inflation.
B) devaluing of the dollar in markets.
C) lowering foreign spending.
D) increasing domestic spending.

Question 70

Arguments against the balanced budget amendment include which of the following?

A) A balanced budget amendment would exert fiscal discipline on the federal government.
B) A balanced budget amendment would increase capital formation.
C) A balanced budget amendment would reduce the taxation burden on future generations.
D) A balanced budget amendment would limit Congress' ability to use fiscal policy during a recession.

Question 71

A large government debt can reduce the amount of ________ in an economy and reduce future income and real wages for citizens.

A) employment
B) capital
C) government spending
D) social benefit programs

Question 72

What is one specific economic situation that a balanced budget amendment would create?

A) It would forbid budget surpluses.
B) It would prevent deficits during peacetime.
C) It would prevent a recession.
D) It would curtail inflation.

Question 73

Arguments against the balanced budget amendment include all of the following EXCEPT

A) a balanced budget amendment would limit Congress from using fiscal policy during a recession.
B) a balanced budget amendment would reduce the taxation burden on future generations.
C) a balanced budget amendment would turn control of the federal budget over to the Judicial Branch.
D) a balanced budget amendment would induce Congress to issue more mandates to states to increase spending.

Question 74

If the private sector is not willing to purchase government bonds being issued to finance a deficit, and the government's only option is to print more money, then this will likely cause

A) a weak stock market.
B) a lower dollar value.
C) inflation.
D) a run on borrowing.

Question 75

Income and revenue from taxes have a specific relationship during recessions. What is it?

A) incomes rise, tax revenue decreases
B) incomes rise, tax revenue increases
C) incomes fall, tax revenue increases
D) incomes fall, tax revenue decreases

Question 76

Who pays the interest on government debt for the money it borrows today?

A) the Federal Reserve
B) the Congressional Budget Office
C) future generations of taxpayers
D) The government does not pay interest on money it borrows.

Question 77

When the deficit increases under the concept of Ricardian Equivalence, what happens to savings in the private sector?

A) nothing
B) savings decrease
C) savings increase
D) savers hedge on purchases

Question 78

In 2009, approximately 52 percent of the U.S. public debt was held by

A) private companies.
B) foreigners.
C) investment firms.
D) individuals.

Question 79

Arguments for the balanced budget amendment include all of the following EXCEPT

A) a balanced budget amendment would exert fiscal discipline on the federal government.
B) a balanced budget amendment would increase capital formation.
C) a balanced budget amendment would limit Congress from using fiscal policy during a recession.
D) a balanced budget amendment would reduce the taxation burden on future generations.

Question 80

What government agency has the option to purchase government bonds issued by the U.S. Treasury?

A) the IRS
B) the Federal Reserve
C) the Commerce Department
D) the Congressional Budget Office