Question 1

If the government experiences a budget deficit that it finances through borrowing, then the country's Debt/GDP ratio will always increase, even if the economy experiences economic growth.

Accepted Answer

A) True 
 B)False

Question 2

An example of an automatic stabilizer is:

Accepted Answer

A)   changing the tax laws to increase the marginal tax rates.
B)   the interest the government pays on loans.
C)   the food stamp program.
D)   the indexation of social security benefits to the consumer price index.E) B) and D)
F) None of the above

Question 3

A budget deficit causes the national debt to fall.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that the government debt is $100 million at the beginning of the year. If government collects $55 million in taxes and incurs $50 million in expenditures this year, then the government is experiencing a _______ and the debt will be _______ at the end of the year.

Accepted Answer

A)   deficit, $105 million
B)   surplus, $95 million
C)   surplus, $105 million
D)   deficit, $95 millionE) B) and D)
F) C) and D)

Question 5

The nation's total federal debt represents the total of all accumulated deficits minus surpluses over time.

Accepted Answer

A) True 
 B)False

Question 6

In 2001, the federal budget turned _______ and, as a result of this, it is expected that the ratio of government debt to GDP is expected to _______.

Accepted Answer

A)   from a deficit into a surplus ; decrease
B)   from a surplus into a deficit ; decrease
C)   from a surplus into a deficit ; increase
D)   from a deficit into a surplus ; increaseE) B) and C)
F) A) and C)

Question 7

Which is not a way in which the federal government can finance its expenditure?

Accepted Answer

A)   tax revenues
B)   creating money
C)   issuing bonds
D)   buying federal government securitiesE) A) and B)
F) All of the above

Question 8

One way to prove the Ricardian equivalence is true is to show that when the government deficit increases, (the)  _______ also increase(s) .

Accepted Answer

A)   country's imports
B)   consumption expenditures
C)   money supply
D)   private sector savingE) B) and C)
F) A) and B)

Question 9

The reason why the budget deficit decreases during economic expansions is:

Accepted Answer

A)   lower tax revenues
B)   higher welfare payments.
C)   higher tax revenues.
D)   Both A and B are correct.E) A) and B)
F) All of the above

Question 10

Replacing the personal income tax with a consumption tax would:

Accepted Answer

A)   favor poor and low income individuals.
B)   increase overall federal revenues from taxation.
C)   favor all taxpayers equally, regardless of their personal wealth.
D)   favor wealthy and high income individuals.E) B) and D)
F) A) and B)

Question 11

Recall Application 3, "Is a VAT in our Future?" to answer the following questions.
-Based on what you learned from the application, the VAT is a form of a flat tax.

Accepted Answer

A) True 
 B)False

Question 12

Between 1996 and 1997, the budget deficit in Egypt fell dramatically. Other things being constant, this decline should have made interest rates _______ and investment _______ .

Accepted Answer

A)   rise; fall
B)   fall; fall
C)   rise; rise
D)   fall; riseE) All of the above
F) B) and C)

Question 13

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income...

Question 14

Some argue that deficits can cause a smaller government because:

Accepted Answer

A)   deficits make it harder for politicians to print money.
B)   deficits make it easier for politicians to print money.
C)   deficits make it easier for politicians to increase spending.
D)   deficits make it harder for politician to increase spendingE) None of the above
F) A) and D)

Question 15

Recall Application 2, "Would a Policy Rule Have Prevented the Housing Boom? ," to answer the following questions:
-According to the application, which of the following did John Taylor identify as the cause of the housing boom from 2001- 2004?

Accepted Answer

A)   the Treasury's bailout of banks
B)   the Fed's "easy money" policy
C)   the Fed's "tight money" policy
D)   Congress' tax cutsE) A) and D)
F) A) and C)

Question 16

If the Ricardian Equivalence were true, the effect of an increase in government expenditure

Accepted Answer

A)   will increase investment by the amount of the increased government spending.
B)   will increase investment by more than the increase in government spending.
C)   will have no effect on investment.
D)   will decrease investment by the amount of the government spending.E) None of the above
F) All of the above

Question 17

Allowing the Fed to set its own inflation targets,

Accepted Answer

A)   would require a constitutional amendment.
B)   would make the Fed even more independent from Congress.
C)   would diminish the Fed's authority and control over the economy.
D)   would eliminate the need for the Treasury Department.E) B) and C)
F) A) and C)

Question 18

A tax system that discourages savings hurts long- run growth prospects because:

Accepted Answer

A)   the trade balance deteriorates.
B)   the federal budget turns into surplus.
C)   consumption spending remains constant.
D)   investment spending decreases.E) A) and D)
F) A) and B)

Question 19

Is it possible for the Fed to reduce the inflation rate with little increase in the unemployment rate? Explain.

Accepted Answer

Yes, it is possible for the Fed to lower...

Question 20

From the end of 1997 through 2000, federal government debt as a percentage of GDP:

Accepted Answer

A)   became negative.
B)   increased.
C)   remained constant.
D)   decreased.E) A) and B)
F) C) and D)

Exam 17: Macroeconomic Policy Debates

A tax system that discourages savings hurts long- run growth prospects because:

Correct AnswerverifiedShow Answer

Replacing the personal income tax with a consumption tax would:

Correct AnswerverifiedShow Answer

Suppose that the government debt is $100 million at the beginning of the year. If government collects $55 million in taxes and incurs $50 million in expenditures this year, then the government is experiencing a _______ and the debt will be _______ at the end of the year.

Correct AnswerverifiedShow Answer

In 2001, the federal budget turned _______ and, as a result of this, it is expected that the ratio of government debt to GDP is expected to _______.

Correct AnswerverifiedShow Answer

The nation's total federal debt represents the total of all accumulated deficits minus surpluses over time.

Correct AnswerverifiedShow Answer

Why do many economists advocate a consumption tax rather than an income tax?

Correct AnswerverifiedThe current income tax means that income...View AnswerShow Answer

Between 1996 and 1997, the budget deficit in Egypt fell dramatically. Other things being constant, this decline should have made interest rates _______ and investment _______ .

Correct AnswerverifiedShow Answer

Is it possible for the Fed to reduce the inflation rate with little increase in the unemployment rate? Explain.

Correct AnswerverifiedYes, it is possible for the Fed to lower...View AnswerShow Answer

From the end of 1997 through 2000, federal government debt as a percentage of GDP:

Correct AnswerverifiedShow Answer

An example of an automatic stabilizer is:

Correct AnswerverifiedShow Answer

The reason why the budget deficit decreases during economic expansions is:

Correct AnswerverifiedShow Answer

If the Ricardian Equivalence were true, the effect of an increase in government expenditure

Correct AnswerverifiedShow Answer

One way to prove the Ricardian equivalence is true is to show that when the government deficit increases, (the) _______ also increase(s) .

Correct AnswerverifiedShow Answer

Recall Application 2, "Would a Policy Rule Have Prevented the Housing Boom? ," to answer the following questions: -According to the application, which of the following did John Taylor identify as the cause of the housing boom from 2001- 2004?

Correct AnswerverifiedShow Answer

If the government experiences a budget deficit that it finances through borrowing, then the country's Debt/GDP ratio will always increase, even if the economy experiences economic growth.

Correct AnswerverifiedShow Answer

Recall Application 3, "Is a VAT in our Future?" to answer the following questions. -Based on what you learned from the application, the VAT is a form of a flat tax.

Correct AnswerverifiedShow Answer

Which is not a way in which the federal government can finance its expenditure?

Correct AnswerverifiedShow Answer

A budget deficit causes the national debt to fall.

Correct AnswerverifiedShow Answer

Allowing the Fed to set its own inflation targets,

Correct AnswerverifiedShow Answer

Some argue that deficits can cause a smaller government because:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Suppose that the government debt is $100 million at the beginning of the year. If government collects $55 million in taxes and incurs $50 million in expenditures this year, then the government is experiencing a _ and the debt will be _ at the end of the year.

Correct Answer
verified

In 2001, the federal budget turned _ and, as a result of this, it is expected that the ratio of government debt to GDP is expected to _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The current income tax means that income...
View Answer

Between 1996 and 1997, the budget deficit in Egypt fell dramatically. Other things being constant, this decline should have made interest rates _ and investment _ .

Correct Answer
verified

Correct Answer
verified
Yes, it is possible for the Fed to lower...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified