1) The government budget constraint tells us that the budget deficit is equal to
ID: 1213835 • Letter: 1
Question
1) The government budget constraint tells us that the budget deficit is equal to A) interest on the debt.
B) the primary deficit.
C) the primary deficit plus interest on the debt.
D) imports minus exports.
E) the primary deficit plus the trade deficit plus interest on the debt.
2) The primary deficit is
A) government spending minus interest on the debt.
B) government spending minus net tax revenues.
C) government spending plus interest on the debt minus net tax revenues. D) government spending plus net tax revenues minus interest on the debt. E) interest on the debt minus net tax revenues.
3) The "official measure" of the deficit (the one reported by the government) A) tells us the change in government nominal debt.
B) is equal to nominal interest payments on the debt plus the primary deficit. C) overestimates the real budget deficit whenever the inflation rate is positive. D) all of the above
E) none of the above
4) The debt-ratio is the ratio of the debt to A) government spending.
B) saving.
C) taxes.
D) personal disposable income. E) GDP.
5) The debt ratio will increase by more in any given year when A) the real interest rate is lower.
B) the growth rate of GDP is higher.
C) the initial debt ratio is greater.
D) all of the above E) none of the above
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12 May 2016
6) If the Ricardian equivalence proposition is correct, then decrease in taxes will lead to A) no change in private consumption.
B) increase in private consumption
C) a decrease in investment spending.
D) a lower standard of living in the future. E) none of the above
7) To reduce distortions in the economy, it is probably better to finance temporary large government spending with
A) deficits.
B) taxes.
C) exports.
D) all of the above E) none of the above
8) The correct measure of the deficit is also called A) the cyclically-adjusted deficit.
B) the structural deficit.
C) the full-employment deficit.
D) the inflation-adjusted deficit. E) all of the above
9) The difference between the official and correct measures of the deficit will be greater, A) the lower is government spending.
B) the lower is the level of debt, B.
C) the higher is inflation.
D) none of the above
10) Which of the following will cause a reduction in the debt-to-GDP ratio? A) an increase in the real interest rate.
B) an increase in the ratio of the primary deficit to GDP.
C) an increase in the growth rate of output.
D) all of the above
11) When a government partially defaults its debt, a "haircut" of 20% means that A) creditors receive 20% of what they owed.
B) creditors receive 80% of what they owed.
C) creditors receive 40% of what they owed.
D) creditors receive 10% of what they owed.
12) Government default is also called A) debt restructuring.
B) debt rescheduling.
C) private sector involvement.
D) all of the above
Explanation / Answer
NOTE: Answers are marked in bold
2) The primary deficit is
A) government spending minus interest on the debt.
B) government spending minus net tax revenues.
C) government spending plus interest on the debt minus net tax revenues.
D) government spending plus net tax revenues minus interest on the debt.
E) interest on the debt minus net tax revenues.
4) The debt-ratio is the ratio of the debt to
A) government spending.
B) saving.
C) taxes.
D) personal disposable income.
E) GDP.
6) If the Ricardian equivalence proposition is correct, then decrease in taxes will lead to
A) no change in private consumption.
B) increase in private consumption
C) a decrease in investment spending.
D) a lower standard of living in the future.
E) none of the above
7) To reduce distortions in the economy, it is probably better to finance temporary large government spending with
A) deficits.
B) taxes.
C) exports.
D) all of the above
E) none of the above
[In the case of a temporary increase in government spending, it has been argued that debt finance is optimal as small increments in all future tax rates to finance interest payments involves a smaller excess burden than the single large tax rate increase that would be required to avoid an initial increase in the national debt.]
8) The correct measure of the deficit is also called
A) the cyclically-adjusted deficit.
B) the structural deficit.
C) the full-employment deficit.
D) the inflation-adjusted deficit.
E) all of the above
10) Which of the following will cause a reduction in the debt-to-GDP ratio?
A) an increase in the real interest rate.
B) an increase in the ratio of the primary deficit to GDP.
C) an increase in the growth rate of output.
D) all of the above
11) When a government partially defaults its debt, a "haircut" of 20% means that A) creditors receive 20% of what they owed.
B) creditors receive 80% of what they owed.
C) creditors receive 40% of what they owed.
D) creditors receive 10% of what they owed.
12) Government default is also called
A) debt restructuring.
B) debt rescheduling.
C) private sector involvement.
D) all of the above
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