Multiple Choice Answers
What makes it possible for a country to maintain a constant debt-to-GDP ratio and still have continual deficits is:
A. positive private savings.
B. trade surpluses.
C. continual inflation.
D. real economic growth.
If a passive surplus exists, the economy must be:
A. at potential income.
B. above potential income.
C. below potential income.
D. experiencing deflation.
Deficits and surpluses are best viewed as:
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.
Which of the following statements about government debt is false?
A. Government has the power to tax to finance its debt.
B. Government can create money to finance its debt.
C. Most U.S. government debt is owned by foreigners.
D. Almost half of U.S. government debt is internal to the government.
Holding the nominal deficit, nominal interest rate, and total debt constant, an increase in the inflation rate will:
A. not affect the real deficit.
B. raise the real deficit.
C. lower the real deficit.
D. either raise or lower the real deficit depending on the real interest rate.
Which of the following statements gives the correct definition of the real deficit?
A. Real deficit = Nominal deficit + (inflation x total debt)
B. Real deficit = Nominal deficit + (total debt/inflation)
C. Real deficit = Nominal deficit – (total debt/inflation)
D. Real deficit = Nominal deficit – (inflation x total debt)
Debt needs to be judged relative to assets because:
A. private investment is always more productive than government investment.
B. all assets provide interest payments to pay the debt.
C. assets can increase the ability of a country to repay a debt.
D. assets are always depreciating.
If the national debt increases in any given year, it follows that the government:
A. sold bonds in that year to finance a budget surplus.
B. bought bonds in that year to finance a budget surplus.
C. sold bonds in that year to finance a budget deficit.
D. bought bonds in that year to finance a budget deficit.
Paying interest on internal government debt involves a:
A. net reduction in domestic income.
B. redistribution of income among citizens of the country.
C. net increase in domestic income.
D. redistribution of income to citizens of other countries.
Government debt is defined as:
A. a shortfall of incoming revenue under outgoing payment.
B. a shortfall of outgoing payments under incoming revenue.
C. accumulated deficits minus accumulated surpluses.
D. accumulated deficits plus accumulated surpluses.
Use the above table to determine which statement is true
A. 1946 and 1950, the budget was in deficit while in 1948-1949, the budget was in surplus.
B. In 1946 and 1950, the budget was in surplus while in 1948-1949, the budget was in deficit
C. The debt rose each year from 1946 to 1950
D. The debt fell from 1946 to 1950.