Question 1

A decrease in the inflation rate will lead to a ________ nominal interest rate,which will ________ the debt-to-GDP ratio.

Accepted Answer

A decrease in the inflation rate typically leads to a lower nominal interest rate. Lower interest rates can reduce the cost of servicing debt, potentially lowering the debt-to-GDP ratio if economic growth is stimulated.

Question 2

Holding everything else constant,if total factor productivity ________ or if the labour force growth rate ________ the debt-to-GDP ratio will increase.

Accepted Answer

The answer of Holding everything else constant,if total factor productivity...

Question 3

Assume that seigniorage and the government's primary deficit are both zero.If the real interest rate is greater than the growth rate of real GDP,the debt-to-GDP ratio

Accepted Answer

When the real interest rate is greater than the growth rate of real GDP, the government will have to pay more in interest on its debt than the economy is growing. This will cause the debt-to-GDP ratio to increase over time, as the interest payments on the debt accumulate faster than the economy is growing. Therefore, the correct choice is A) the debt-to-GDP ratio will increase.

Question 4

Table 15.3 Cordelia Saldinia $$\begin{array} { | l | r | r | } \hline \text { Debt-to-cDP ratio } & 172 \% & 65 \% \ \hline \text { Average annual ecanmaic growth } & & \ \text { unt } & 4.7 \% & 3.2 \% \ \hline \text { Average influtim rate } & 6.3 \% & - 0.3 \% \ \hline \text { Average nominal interest rate } & 2.5 \% & 4.6 \% \ \hline \end{array}$$ The above table contains data for the nations of Cordelia and Saldinia for 2012. Assume seigniorage is zero. -Refer to Table 15.3.Based on the data in the table,fiscal policy in Cordelia is ________ and fiscal policy in Saldinia is ________.

Accepted Answer

Fiscal policy in Cordelia is sustainable because the debt-to-GDP ratio is falling and the average annual economic growth rate is higher than the average inflation rate. Fiscal policy in Saldinia is unsustainable because the debt-to-GDP ratio is rising and the average annual economic growth rate is lower than the average inflation rate.

Question 5

When the nominal interest rate is not constant,an increase in the growth rate of the money supply ________ the inflation rate,and ________ the debt-to-GDP ratio.

Accepted Answer

When the nominal interest rate is not constant, an increase in the growth rate of the money supply can have an ambiguous effect on the debt-to-GDP ratio since it depends on other factors such as fiscal policy. However, an increase in the growth rate of the money supply typically increases the inflation rate due to the quantity theory of money.

Question 6

Table 15.2 $$\begin{array} { | l | r | } \hline \text { Federal goverunent expenditures on } & \ \hline \text { goods and sernices } & \$ 840 \text { million } \ \hline \text { Trarsfer payments } & \$ 145 \text { million } \ \hline \text { Tax reverue } & \$ 735 \text { million } \ \hline \text { frterest payment on existing debt } & \$ 95 \text { million } \ \hline \text { Seigriorage } & \$ 20 \text { million } \ \hline \text { Newly-issued poverunent bonds } & \$ 325 \text { million } \end{array}$$ The data in the table represents budget figures for the nation of Harmonia for 2012. -Refer to Table 15.2.From the information presented in the table,calculate the following values for the nation of Harmonia in 2012: a. the budget deficit b. the primary budget deficit c. the uses of government funds d. the sources of government funds

Accepted Answer

The answer of Table 15.2
 \[\begin{array} { | l |...

Question 7

Assume that seigniorage and the government's primary deficit are both zero.A change in the debt-to-GDP ratio depends on just

Accepted Answer

A change in the debt-to-GDP ratio depends on the growth rate of real GDP and the real interest rate. When the real GDP grows at a rate greater than the real interest rate, the debt-to-GDP ratio decreases, and vice versa. Therefore, if the government's primary deficit and seigniorage are both zero, the growth rate of real GDP and the real interest rate are the only factors affecting the change in the debt-to-GDP ratio.

Question 8

Table 15.3 Cordelia Saldinia $$\begin{array} { | l | r | r | } \hline \text { Debt-to-cDP ratio } & 172 \% & 65 \% \ \hline \text { Average annual ecanmaic growth } & & \ \text { unt } & 4.7 \% & 3.2 \% \ \hline \text { Average influtim rate } & 6.3 \% & - 0.3 \% \ \hline \text { Average nominal interest rate } & 2.5 \% & 4.6 \% \ \hline \end{array}$$ The above table contains data for the nations of Cordelia and Saldinia for 2012. Assume seigniorage is zero. -Refer to Table 15.3.Based on the data in the table,the primary budget deficit necessary to make fiscal policy sustainable in Saldinia is ________ of GDP.

Accepted Answer

The answer of Table 15.3
Cordelia Saldinia
 \[\begin{array} { | l...

Question 9

For each of the following scenarios,state the effect on the debt-to-GDP ratio:
a. The growth rate of the labour force increases.
b. The primary deficit increases.
c. Total factor productivity decreases.
d. Seigniorage decreases.
e. The nominal interest rate is constant and the growth rate of the money supply increases.
f. The nominal interest rate is not constant and the growth rate of the money supply increases.

Accepted Answer

The answer of For each of the following scenarios,state the...

Question 10

The debt-to-GDP ratio decreases when the primary deficit ________ or when seigniorage ________.

Accepted Answer

The debt-to-GDP ratio is calculated by dividing the total government debt by the country's GDP. The primary deficit is the government's budget deficit, excluding interest payments on past debt. So, if the primary deficit decreases, the government is spending less than it is receiving in revenue, which means it is borrowing less money. This reduces the total government debt and therefore lowers the debt-to-GDP ratio.
Seigniorage refers to the revenue a government generates by printing money. If seigniorage increases, the government has more money to pay off its debts or spend on other programs without borrowing more money. This reduces the need for borrowing, and therefore lowers the total government debt, leading to a decrease in the debt-to-GDP ratio.

Question 11

Since 1981,which of the following federal expenditures,measured by their share of federal government spending,have increased the most?

Accepted Answer

According to the data from 1981 to the present, transfers to other government and old age security payments have consistently increased in share of federal government spending, while the other options have fluctuated or remained relatively stable. This can be attributed to factors such as an aging population and increasing healthcare costs.

Question 12

Table 15.3 Cordelia Saldinia $$\begin{array} { | l | r | r | } \hline \text { Debt-to-cDP ratio } & 172 \% & 65 \% \ \hline \text { Average annual ecanmaic growth } & & \ \text { unt } & 4.7 \% & 3.2 \% \ \hline \text { Average influtim rate } & 6.3 \% & - 0.3 \% \ \hline \text { Average nominal interest rate } & 2.5 \% & 4.6 \% \ \hline \end{array}$$ The above table contains data for the nations of Cordelia and Saldinia for 2012. Assume seigniorage is zero. -Refer to Table 15.3.Based on the data in the table,the primary budget deficit necessary to make fiscal policy sustainable in Cordelia is ________ of GDP.

Accepted Answer

For fiscal policy to be sustainable, the primary budget deficit should be equal to the product of the debt-to-cDP ratio and the difference between the nominal interest rate and the growth rate of the economy. 
For Cordelia, the primary budget deficit necessary for sustainability is:
0.172 × (0.046 - 0.047) = -0.0015 or -1.5% of GDP. 
Therefore, the correct answer is (D) -1.5%.

Question 13

Holding everything else constant,if total factor productivity increases,the debt-to-GDP ratio will ________,and if the labour force growth rate increases,the debt-to-GDP ratio will ________.

Accepted Answer

An increase in total factor productivity boosts GDP, reducing the debt-to-GDP ratio. Similarly, an increase in the labor force growth rate also raises GDP, further decreasing the debt-to-GDP ratio.

Question 14

Assume that seigniorage and the government's primary deficit are both zero.If the real interest rate is less than the growth rate of real GDP,fiscal policy ________,and if the real interest rate is greater than the growth rate of real GDP,fiscal policy ________.

Accepted Answer

If the real interest rate is less than the growth rate of real GDP, the government can borrow to finance its spending without creating a long-term sustainability problem. However, if the real interest rate is greater than the growth rate of real GDP, the government will eventually have to increase taxes or cut spending to pay back its debt, leading to an unsustainable fiscal policy.

Question 15

An increase in the inflation rate will lead to a ________ nominal interest rate,which will ________ the debt-to-GDP ratio.

Accepted Answer

An increase in the inflation rate leads to a higher nominal interest rate, as higher inflation erodes the purchasing power of money, and lenders require compensation for this. This increase in nominal interest rate will raise the debt-to-GDP ratio because it increases the interest payments on outstanding debt, which adds to the overall debt burden.

Question 16

Holding everything else constant,if the nominal interest rate decreases,the interest paid on the debt ________ the debt-to-GDP ratio,and nominal GDP growth ________ the debt-to-GDP ratio.

Accepted Answer

A decrease in the nominal interest rate reduces the interest paid on the debt, which decreases the debt-to-GDP ratio. Additionally, if nominal GDP growth increases, it also decreases the debt-to-GDP ratio by increasing the denominator.

Question 17

What are the differences between the federal debt,the budget deficit,and the primary budget deficit?

Accepted Answer

The answer of What are the differences between the federal...

Question 18

Explain why debt is usually measured using the debt-to-GDP ratio rather than the absolute amount of debt.

Accepted Answer

The answer of Explain why debt is usually measured using...

Question 19

When the nominal interest rate is constant,________ in the growth rate of the money supply ________ the inflation rate,and ________ the debt-to-GDP ratio.

Accepted Answer

According to the quantity theory of money, when the nominal interest rate is constant, a decrease in the growth rate of the money supply decreases the inflation rate. This is because the quantity theory of money states that the inflation rate is directly proportional to the growth rate of the money supply. As for the debt-to-GDP ratio, when the growth rate of the money supply decreases, it becomes more difficult for the government to borrow money, so the debt-to-GDP ratio increases.

Question 20

The debt-to-GDP ratio increases when the primary deficit ________ or when seigniorage ________.

Accepted Answer

The debt-to-GDP ratio increases when the primary deficit increases because the government is borrowing more to cover its expenses. It also increases when seigniorage decreases because there is less revenue from money creation to offset the deficit.

Quiz 15: Fiscal Policy and the Government Budget in the Long Run

A decrease in the inflation rate will lead to a nominal interest rate,which will the debt-to-GDP ratio.

Holding everything else constant,if total factor productivity or if the labour force growth rate the debt-to-GDP ratio will increase.

Assume that seigniorage and the government's primary deficit are both zero.If the real interest rate is greater than the growth rate of real GDP,the debt-to-GDP ratio

When the nominal interest rate is not constant,an increase in the growth rate of the money supply the inflation rate,and the debt-to-GDP ratio.

Assume that seigniorage and the government's primary deficit are both zero.A change in the debt-to-GDP ratio depends on just

The debt-to-GDP ratio decreases when the primary deficit or when seigniorage .

Since 1981,which of the following federal expenditures,measured by their share of federal government spending,have increased the most?

Holding everything else constant,if total factor productivity increases,the debt-to-GDP ratio will ,and if the labour force growth rate increases,the debt-to-GDP ratio will .

Assume that seigniorage and the government's primary deficit are both zero.If the real interest rate is less than the growth rate of real GDP,fiscal policy ,and if the real interest rate is greater than the growth rate of real GDP,fiscal policy .

An increase in the inflation rate will lead to a nominal interest rate,which will the debt-to-GDP ratio.

Holding everything else constant,if the nominal interest rate decreases,the interest paid on the debt the debt-to-GDP ratio,and nominal GDP growth the debt-to-GDP ratio.

What are the differences between the federal debt,the budget deficit,and the primary budget deficit?

Explain why debt is usually measured using the debt-to-GDP ratio rather than the absolute amount of debt.

When the nominal interest rate is constant, in the growth rate of the money supply the inflation rate,and the debt-to-GDP ratio.

The debt-to-GDP ratio increases when the primary deficit or when seigniorage .