Question 1

In fiscal year 1997, the U.S. government ran a deficit of about $21.9 billion. In fiscal year 1998, the government ran a surplus of about $69.3 billion. Other things the same, we would expect this change

Accepted Answer

When a government runs a surplus, it reduces the amount of borrowing it needs to do, which decreases demand for loans and tends to drive interest rates down. This makes it cheaper for businesses and individuals to borrow money, which increases investment. Therefore, we would expect decreased interest rates and increased investment.

Question 2

The national debt

Accepted Answer

The national debt refers to the total amount of money that the government owes to its creditors, which includes foreign governments, individuals and institutions. It exists because of past government budget deficits, which occur when the government spends more money than it takes in through tax revenue and other sources of income.

Question 3

Real interest rates

Accepted Answer

The answer of Real interest rates
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Question 4

Part of the argument against deficits is that they

Accepted Answer

Deficits increase the amount of government borrowing, which in turn puts upward pressure on interest rates as more borrowers compete for funds. Higher interest rates ultimately discourage private investment and can lead to slower economic growth.

Question 5

Some economists argue that since inflation

Accepted Answer

Inflation reduces the real value of fixed nominal wages, which can make it easier for labor markets to adjust because employers can effectively lower real wages without nominal wage cuts, facilitating adjustments in labor demand and supply.

Question 6

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. Other things the same, this change would be expected to have

Accepted Answer

When the government runs a deficit, it typically borrows more money, which increases the demand for money in the economy and leads to higher interest rates. Higher interest rates, in turn, discourage investment by making it more expensive for businesses and individuals to borrow money. Therefore, the change from a surplus to a deficit would be expected to result in increased interest rates and decreased investment.

Question 7

Some economists believe that there are positives from a little inflation and that it may "grease the wheels"

Accepted Answer

Some economists believe that a little inflation may "grease the wheels" in the labor market by encouraging workers to seek higher wages and employers to hire more workers, leading to increased economic growth. Inflation can also help adjust relative prices and encourage investment in long-term projects. However, too much inflation can harm economic growth and stability.

Question 8

An added benefit of inflation is that it allows for the possibility of

Accepted Answer

Inflation can lead to negative real interest rates, where the nominal interest rate is lower than the inflation rate. This can stimulate borrowing and investment, which can promote economic growth. However, menu costs, aggregate supply shocks, and recessions are not benefits of inflation.

Question 9

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

Accepted Answer

The answer of Demand for workers in some industry declines....

Question 10

In fiscal year 2008, the U.S. government ran a deficit of about $459 billion. In fiscal year 2009, the government ran a deficit of about $1,413 billion. Other things the same, this change would be expected to have

Accepted Answer

An increase in the government's deficit leads to an increase in the supply of bonds in the market, which lowers their price and increases their yield. This leads to an increase in interest rates. Higher interest rates lead to a decrease in investment, as borrowing becomes more expensive for businesses and individuals.

Question 11

Zero inflation

Accepted Answer

The answer of Zero inflation
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Question 12

Economists

Accepted Answer

Economists have differing opinions on the costs of moderate inflation, so option C is not correct. However, it is generally agreed upon that reducing inflation can lead to an increase in unemployment. If inflation expectations remain high, this increase in unemployment will be larger, as people may demand higher wages to compensate for the perceived loss in purchasing power. Therefore, option D is the correct choice. Option A is also incorrect as it implies that economists universally agree on the costs of moderate inflation.

Question 13

If the budget deficit were reduced

Accepted Answer

When the budget deficit is reduced, it means that the government is borrowing less money from the financial market to fund its expenses. This reduces the overall demand for loanable funds, and as a result, interest rates tend to decrease. Lower interest rates make it cheaper for businesses to borrow money, incentivizing them to invest more in their businesses. Therefore, reduced budget deficit leads to a decrease in interest rates and an increase in investment.

Question 14

When wages are set by contract, inflation

Accepted Answer

When wages are set by contract, they are typically fixed for a certain period of time. Inflation reduces the purchasing power of wages, meaning the real value of wages decreases. This can make labor markets more flexible as employers may be more willing to hire workers at lower real wages.

Question 15

Economists

Accepted Answer

Economists disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high. This is because high inflation expectations lead to higher wage demands, which can result in companies having to lay off workers in order to adjust to the increased costs. Therefore, the decrease in inflation may lead to temporary unemployment, but after wages and prices adjust, the economy will adjust back to full employment. Ultimately, economists debate whether the benefits of low inflation outweigh these short-term costs.

Question 16

Economists agree that at least in the short run disinflation

Accepted Answer

Economists generally agree that disinflation, or a decrease in the rate of inflation, leads to a period of higher unemployment in the short run. However, there is disagreement among economists about the costs of moderate inflation. Some argue that moderate inflation can have some benefits, such as promoting investment and economic growth, while others argue that even moderate inflation can have significant costs, such as reducing the value of savings and leading to economic inefficiencies. Therefore, option B is the best choice as it accurately reflects the consensus on unemployment and the disagreement on the costs of moderate inflation among economists.

Question 17

Government deficits mean that

Accepted Answer

Government deficits mean that public saving is negative, which means that people and businesses are spending more than they are saving. This in turn leads to a decrease in national saving, as less money is available for investment. Therefore, public saving is lower than it would be otherwise, and national saving is lower as a result.

Question 18

The effect of budget deficits on interest rates

Accepted Answer

Budget deficits increase the demand for loanable funds, pushing up interest rates. Higher interest rates discourage private investment, leading to a decrease in the capital stock over time. Therefore, option D is the correct answer.

Question 19

Economists

Accepted Answer

The answer of Economists
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Question 20

Over time, continued budget deficits lead to

Accepted Answer

Continued budget deficits lead to lower levels of savings and investments, which ultimately leads to a reduction in the capital stock. This would result in an economy with fewer resources to produce goods and services, leading to lower productivity.

Quiz 23: Six Debates Over Macroeconomic Policy

In fiscal year 1997, the U.S. government ran a deficit of about $21.9 billion. In fiscal year 1998, the government ran a surplus of about $69.3 billion. Other things the same, we would expect this change

The national debt

Real interest rates

Part of the argument against deficits is that they

Some economists argue that since inflation

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. Other things the same, this change would be expected to have

Some economists believe that there are positives from a little inflation and that it may "grease the wheels"

An added benefit of inflation is that it allows for the possibility of

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

In fiscal year 2008, the U.S. government ran a deficit of about $459 billion. In fiscal year 2009, the government ran a deficit of about $1,413 billion. Other things the same, this change would be expected to have

Zero inflation

Economists

If the budget deficit were reduced

When wages are set by contract, inflation

Economists

Economists agree that at least in the short run disinflation

Government deficits mean that

The effect of budget deficits on interest rates

Economists

Over time, continued budget deficits lead to