Question 1

An unanticipated increase in the inflation rate will most likely:

Accepted Answer

A)  either increase or decrease the real value of the national debt, depending on the effect of inflation on capital gains and losses.
B)  increase the real value of the national debt.
C)  transfer real wealth from bondholders to the government.
D)  have no effect on the real value of the national debt.

Question 2

Deficits and surpluses are best viewed as:

Accepted Answer

A)  comprehensive measures of government's budget.
B)  a summary measure of a nation's fiscal policy.
C)  a summary measure of the financial health of the economy.
D)  a summary measure of a nation's monetary policy.

Question 3

During World War II, the economic boom that raised U.S. equilibrium income above potential income:

Accepted Answer

A)  increased the structural deficit.
B)  eliminated any structural deficit.
C)  increased the cyclical deficit.
D)  eliminated any cyclical deficit.

Question 4

If the real deficit is $200 billion, the inflation rate is 2.5 percent, and total debt is $2 trillion, then the nominal deficit is:

Accepted Answer

A)  $100 billion.
B)  $250 billion.
C)  $300 billion.
D)  $350 billion.

Question 5

The real deficit is the nominal deficit adjusted for inflation's effect on existing debt.

Accepted Answer

A) True 
 B)False

Question 6

The cyclical deficit is $400 billion, potential output is $9 trillion and the tax rate is 16 percent. With this information, we can infer that the actual output of this economy is:

Accepted Answer

A)  $6 trillion.
B)  $11.5 trillion.
C)  $6.5 trillion.
D)  $9 trillion.

Question 7

If the debt of the federal government decreases by $20 billion in one year the budget:

Accepted Answer

A)  deficit in that year must be $20 billion.
B)  surplus in that year must be $20 billion.
C)  deficit in that year decreases by $20 billion.
D)  surplus in that year increases by $20 billion.

Question 8

If income falls below its potential and the income tax rate is reduced, this will:

Accepted Answer

A)  raise both the cyclical and structural deficits.
B)  raise the cyclical deficit but reduce the structural deficit.
C)  reduce the cyclical deficit but raise the structural deficit.
D)  reduce both the cyclical and structural deficits.

Question 9

Consider an economy with an annual GDP of $5 trillion that is growing at a real rate of 3% per year,and has a government debt of $3 trillion.
(a)What is this economy's relative debt burden?
(b)How much of a deficit can this economy's government have each year and still maintain its current relative debt burden?

Accepted Answer

(a)The relative debt burden is measured ...

Question 10

What is the distinction between the nominal deficit and the real deficit? Why can inflation wipe out debt?

Accepted Answer

The nominal deficit is measured by the d...

Question 11

What's the difference between a structural and a passive budget deficit? What contributes to a passive deficit?

Accepted Answer

The structural deficit is the part of a ...

Question 12

How do accounting practices affect the definitions of deficits and surpluses? Explain.

Accepted Answer

The definitions of deficit and surplus a...

Question 13

Bond holders:

Accepted Answer

A)  lose when actual inflation equals expected inflation.
B)  gain when actual inflation is more than was expected.
C)  do not lose when the expected inflation built into the nominal interest rate is correct.
D)  do not lose when the expected inflation built into the nominal interest rate is lower than actual inflation.

Question 14

If the nominal deficit is $200 billion, the real deficit is $180 billion, and total debt is $2 trillion, then inflation is:

Accepted Answer

A)  1 percent.
B)  2.5 percent.
C)  4 percent.
D)  5 percent.

Question 15

Compared to the predictions of the standard AS/AD model, the structural stagnation model implies that the:

Accepted Answer

A)  structural deficit is higher.
B)  cyclical deficit is higher.
C)  frictional deficit is lower.
D)  potential deficit is lower.

Question 16

What is the difference between a nominal deficit and the real deficit? How can inflation wipe out the burden of the national debt? Who bears the cost of eliminating debt with inflation?

Accepted Answer

A nominal deficit is the deficit determi...

Question 17

What are two ways growth in GDP reduces the problems posed by deficits and debt? Explain each of them.

Accepted Answer

GDP can grow because of real growth or b...

Question 18

Economists believe that an increase in equilibrium income can eliminate a cyclical deficit but cannot eliminate a structural deficit.

Accepted Answer

A) True 
 B)False

Question 19

Policymakers generally are:

Accepted Answer

A)  more concerned about structural deficits than cyclical deficits.
B)  equally concerned about structural and cyclical deficits.
C)  more concerned about cyclical deficits than structural deficits.
D)  not concerned about structural or cyclical deficits.

Question 20

The real deficit is $180 billion; inflation is 4 percent; total debt is $4.5 trillion. The nominal deficit is:

Accepted Answer

A)  zero.
B)  $1 billion.
C)  $180 billion.
D)  $360 billion.

Exam 31: Deficits and Debt: the Austerity Debate

What's the difference between a structural and a passive budget deficit? What contributes to a passive deficit?

Correct Answer
verified
The structural deficit is the part of a ...
View Answer

The cyclical deficit is $400 billion, potential output is $9 trillion and the tax rate is 16 percent. With this information, we can infer that the actual output of this economy is:

Correct Answer
verified

Economists believe that an increase in equilibrium income can eliminate a cyclical deficit but cannot eliminate a structural deficit.

Correct Answer
verified

If the debt of the federal government decreases by $20 billion in one year the budget:

Correct Answer
verified

What is the difference between a nominal deficit and the real deficit? How can inflation wipe out the burden of the national debt? Who bears the cost of eliminating debt with inflation?

Correct Answer
verified
A nominal deficit is the deficit determi...
View Answer

During World War II, the economic boom that raised U.S. equilibrium income above potential income:

Correct Answer
verified

The real deficit is $180 billion; inflation is 4 percent; total debt is $4.5 trillion. The nominal deficit is:

Correct Answer
verified

What is the distinction between the nominal deficit and the real deficit? Why can inflation wipe out debt?

Correct Answer
verified
The nominal deficit is measured by the d...
View Answer

Policymakers generally are:

Correct Answer
verified

How do accounting practices affect the definitions of deficits and surpluses? Explain.

Correct Answer
verified
The definitions of deficit and surplus a...
View Answer

The real deficit is the nominal deficit adjusted for inflation's effect on existing debt.

Correct Answer
verified

An unanticipated increase in the inflation rate will most likely:

Correct Answer
verified

Deficits and surpluses are best viewed as:

Correct Answer
verified

Compared to the predictions of the standard AS/AD model, the structural stagnation model implies that the:

Correct Answer
verified

Bond holders:

Correct Answer
verified

What are two ways growth in GDP reduces the problems posed by deficits and debt? Explain each of them.

Correct Answer
verified
GDP can grow because of real growth or b...
View Answer

If income falls below its potential and the income tax rate is reduced, this will:

Correct Answer
verified

If the nominal deficit is $200 billion, the real deficit is $180 billion, and total debt is $2 trillion, then inflation is:

Correct Answer
verified

Correct Answer
verified
(a)The relative debt burden is measured ...
View Answer

If the real deficit is $200 billion, the inflation rate is 2.5 percent, and total debt is $2 trillion, then the nominal deficit is:

Correct Answer
verified

Exam 31: Deficits and Debt: the Austerity Debate

What's the difference between a structural and a passive budget deficit? What contributes to a passive deficit?

Correct AnswerverifiedThe structural deficit is the part of a ...View AnswerShow Answer

The cyclical deficit is $400 billion, potential output is $9 trillion and the tax rate is 16 percent. With this information, we can infer that the actual output of this economy is:

Correct AnswerverifiedShow Answer

Economists believe that an increase in equilibrium income can eliminate a cyclical deficit but cannot eliminate a structural deficit.

Correct AnswerverifiedShow Answer

If the debt of the federal government decreases by $20 billion in one year the budget:

Correct AnswerverifiedShow Answer

What is the difference between a nominal deficit and the real deficit? How can inflation wipe out the burden of the national debt? Who bears the cost of eliminating debt with inflation?

Correct AnswerverifiedA nominal deficit is the deficit determi...View AnswerShow Answer

During World War II, the economic boom that raised U.S. equilibrium income above potential income:

Correct AnswerverifiedShow Answer

The real deficit is $180 billion; inflation is 4 percent; total debt is $4.5 trillion. The nominal deficit is:

Correct AnswerverifiedShow Answer

What is the distinction between the nominal deficit and the real deficit? Why can inflation wipe out debt?

Correct AnswerverifiedThe nominal deficit is measured by the d...View AnswerShow Answer

Policymakers generally are:

Correct AnswerverifiedShow Answer

How do accounting practices affect the definitions of deficits and surpluses? Explain.

Correct AnswerverifiedThe definitions of deficit and surplus a...View AnswerShow Answer

The real deficit is the nominal deficit adjusted for inflation's effect on existing debt.

Correct AnswerverifiedShow Answer

An unanticipated increase in the inflation rate will most likely:

Correct AnswerverifiedShow Answer

Deficits and surpluses are best viewed as:

Correct AnswerverifiedShow Answer

Compared to the predictions of the standard AS/AD model, the structural stagnation model implies that the:

Correct AnswerverifiedShow Answer

Bond holders:

Correct AnswerverifiedShow Answer

What are two ways growth in GDP reduces the problems posed by deficits and debt? Explain each of them.

Correct AnswerverifiedGDP can grow because of real growth or b...View AnswerShow Answer

If income falls below its potential and the income tax rate is reduced, this will:

Correct AnswerverifiedShow Answer

If the nominal deficit is $200 billion, the real deficit is $180 billion, and total debt is $2 trillion, then inflation is:

Correct AnswerverifiedShow Answer

Correct Answerverified(a)The relative debt burden is measured ...View AnswerShow Answer

If the real deficit is $200 billion, the inflation rate is 2.5 percent, and total debt is $2 trillion, then the nominal deficit is:

Correct AnswerverifiedShow Answer

Correct Answer
verified
The structural deficit is the part of a ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A nominal deficit is the deficit determi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The nominal deficit is measured by the d...
View Answer

Correct Answer
verified

Correct Answer
verified
The definitions of deficit and surplus a...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
GDP can grow because of real growth or b...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
(a)The relative debt burden is measured ...
View Answer

Correct Answer
verified