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ECON 201

Updated: Aug 15, 2022

Other things equal,an increase of corporate bonds from \$140 billion to \$150 billion in the economy would

A. not change the size of the public debt.

increase the public debt from \$460 billionto \$470 billion.

increase the public debt from \$600 billion to \$610 billion.

decrease the publicdebt by \$20 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

Type: Table

Suppose the federal government had budget deficits of \$40 billion in year 1 and \$50 billion in year 2 but had budget surpluses of \$20 billion in year 3 and \$50 billion in year 4. Also assume that it used its budget surplusesto pay down the public debt. At the end of these four years, the federalgovernment's public debt

would have

A. increased by \$90 billion.

B. increased by \$20 billion.

decreased by \$70 billion.

decreased by \$20 billion.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

Suppose the federal government had budget surpluses of \$80 billion in year 1 and \$120 billion in year 2 but had budget deficits of \$10 billion in year 3 and \$40 billionin year 4. Also assume that it used its budgetsurpluses to paydown the public debt. At the end of these four years, the federalgovernment's public debt

would have

increased by \$50 billion.

increased by \$150 billion.

decreased by \$200 billion.

D. decreased by \$150 billion.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

Government Spending Tax Revenues GDPYear 1\$450\$425\$2,000Year 25004503,000Year 36005004,000Year 46406205,000Year 56805804,800Year 66006205,000 146.

The accompanying table gives budgetinformation for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's publicdebt is

A. \$275 billion.

\$100 billion.

\$3,540 billion.

\$230 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

Type: Table

Government Spending Tax Revenues GDPYear 1\$450\$425\$2,000Year 25004503,000Year 36005004,000Year 46406205,000Year 56805804,800Year 66006205,000 147.

The accompanying table gives budget information for a hypothetical economy. Assumethat all budget surpluses are used to pay down the public debt. The budget deficit in year 3 is

\$175 billion.

\$3,050 billion.

C. \$100 billion.

D. \$295 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

Type: Table

Government Spending Tax Revenues GDPYear 1\$450\$425\$2,000Year 25004503,000Year 36005004,000Year 46406205,000Year 56805804,800Year 66006205,000 148.

The accompanying table gives budgetinformation for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nation's existence and year 4 is the presentyear, the publicdebt as a percentage of GDP in year 4 is

7.5 percent.

1.39 percent.

2.5 percent.

D. 3.9 percent.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

Type: Table

Government Spending Tax Revenues GDPYear 1\$450\$425\$2,000Year 25004503,000Year 36005004,000Year 46406205,000Year 56805804,800Year 66006205,000 149.

The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. A budget surplus occurred in year

2.

3.

4.

D. 6.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

Type: Table

Government Spending Tax Revenues GDPYear 1\$450\$425\$2,000Year 25004503,000Year 36005004,000Year 46406205,000Year 56805804,800Year 66006205,000 150.

The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the publicdebt. The public debt declined in year

A. 6.

5.

4.

3.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

Type: Table

Government Spending Tax Revenues GDPYear 1\$450\$425\$2,000Year 25004503,000Year 36005004,000Year 46406205,000Year 56805804,800Year 66006205,000 151.

The accompanying table gives budgetinformation for a hypothetical economy. Assumethat all budgetsurpluses are used to pay down the publicdebt. As a percentageof GDP, the

A. budget deficitwas 3.9 percentin year 4.

B. budget surplus was less than 1 percent in year 6.

public debt was 3 percent in year 6.

public debt was 12.5 percentin year 1.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

Type: Table

Which of the followinghistorically has not been a significant contributor to the U.S. public debt?

war financing

tax cuts and expenditure increases in the 1980s

recessions

D. demand-pull inflation

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

Recessions have contributed to the public debt by

A. reducing national income and therefore tax revenues.

increasing real interestrates.

increasing the international value of the dollar.

increasing national saving.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

Which of the following statements is correct?

Federal deficits were largerinthe early 2000sthan in the late 2000s.

Deep tax cuts always expandtax revenues and reduce the publicdebt.

The public debt has usuallydeclined during wartime.

D. There is a tendencyfor the public debt to grow during recessions.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

In 2015, the U.S. federal debt held by the public was

held largely by foreigngovernments.

about fourtimes as large as the GDP.

about twiceas large as the GDP.

D. about 75 percentof the size ofthe GDP.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

In 2015, the U.S. public debt was about

A. \$18.2 trillion.

\$16.4 trillion.

\$5.3 trillion.

\$11.9 trillion.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

The average tax rate required to service the public debt is roughlymeasured by

the absolute size of the debt.

the debt as a fraction of the GDP.

C. interest on the debt as a percentage of the GDP.

D. the ratio of government spending to the GDP.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

What percentage of the U.S. public debt is held by U.S. government agencies and the Federal Reserve (2015)?

26 percent

50 percent

C. 41 percent

D. 34 percent

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

Approximately what percentage of the U.S. public debt is held by foreignindividuals and institutions (2015)?

26 percent

71 percent

41 percent

D. 34 percent

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

The portion of the publicdebt held outside federal agencies and the Federal Reserve is

A. larger than the portionheld by federal agencies and the Federal Reserve.

smaller than the portion held by federal agencies and the FederalReserve.

equally split between U.S. and foreign lenders.

all held by foreign lenders.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

The largestproportion of the U.S. publicdebt is held by

A. the U.S. public (individuals, businesses, financial institutions, and government).

foreign individuals and institutions.

the Federal ReserveSystem.

U.S. government agencies.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

In 2015, about percentof the U.S. public debt was held by people and institutions abroad.

41

15

26

D. 34

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

In 2015, about percentof the U.S. public debt was held by the U.S. government and Federal Reserve.

34

57

62

D. 41

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

To say that "theU.S. public debt is mostly held internally" is to say that

only interest payments on the publicdebt are an economic burden.

official figures understate the size of the publicdebt.

C. the bulk of the publicdebt is owned by U.S. citizens and institutions.

D. the public debt is equal to the land and building assets owned by the federal government.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

Payment of interest on the U.S. public debt

increases the current domesticstandard of living in the United States.

has no effect on the distribution of income.

is thought to decreaseincome inequality.

D. is thought to increase income inequality.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

The most likely way the public debt burdens future generations, if at all, is by

A. reducing the current level of investment.

causing future unemployment.

causing deflation.

reducing real interestrates.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

Other things equal,the stock of capitalinherited by future generations is likely to be smaller when government spending

increases during a period of recession, rather than prosperity.

is primarily for capital-type goods.

C. is financedby borrowing.

D. is financed by taxation.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

The crowding-out effect suggests that

A. tax increases are paid primarily out of savingand therefore are not an effective fiscal device.

B. government borrowing to finance the public debt increases the real interest rate and reducesprivate investment.

it is very difficultto have excessiveaggregate spending in a capitalist economy.

consumer and investment spending always vary inversely.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

The federal government has a large public debt that it finances through borrowing. As a result,real interest rates are higherthan otherwise and the volume of private investment spending is lower. This illustrates the

equation-of-exchange effect.

C. crowding-out effect.

D. net export effect.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

The real burden of an increase in the public debt

A. may be very small or conceivably zero when the economyis in a severe depression.

will be smallerwhen full employment exists than when the economyhas large quantities of idle resources.

can be shifted to future generations if the debt is internally financed.

can best be measuredby the dollar increase in the size of the debt.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

Which one of the followingmight offset a crowding-out effect of financing a large public debt?

A. a declinein net exports

B. an increasein public investment

a decrease in the money supply

a declinein public investment

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

172.

Refer to the diagram. Assume that the investment demand curve is ID1. The crowding-out effect of a large public debt would be shown as a(n)

shift of the investment demand curve from ID1 to ID2.

leftward shift of the investment demand curve.

C. increase in the interestrate from 4 percentto 6 percentand a declinein investment spending of \$5 billion.

D. increase in the interestrate from 6 percentto 8 percentand a declinein investment spending of \$40 billion.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

Type: Graph

173.

Refer to the diagram. Assume that the investment demand curveisID1. Which of the following effects of financinga large public debt might shift the investment demand curve from ID1 to ID2, whollyoffsetting any crowding-out effect?

A. an improvement in profit expectations by businesses

a decrease in saving

a declinein the interestrate

an increasein the marginal propensity to consume

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

Type: Graph

Which of the following is the best example of public investment?

salaries of senatorsand representatives

government expenditures on food assistance programs

C. construction of highways

D. funding of regulatory agencies

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

Which of the followingis not considered a legitimateconcern of a large public debt?

A. bankruptcy of the federal government

disincentives created by higher taxes

crowding out of private investment

increased income inequality

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. Public Debt

Which of the followingis considered a legitimate concern of a large public debt?

A. bankruptcy of the federalgovernment

B. crowdingout of privateinvestment

burdening future generations

collapse of the financial system

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-06 Discuss the size, composition, and consequences of the U.S. public debt.

Test Bank: I Topic: The U.S. PublicDebt

(Last Word) The combinedcost of Social Securityand Medicare programs was what percentage of U.S. GDP in 2014?

A. 8.5

B. 11.4

C. 17.2

D. 12.2

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-05Discuss the problems that governmentsmay encounter in enactingand applying fiscal policy.

Test Bank: I Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy

(Last Word) In 1960 the ratio of workers to Social Security and Medicare beneficiaries was ; by 2040 it is projected to be . A. 10:1; 3:1

B. 3:1; 2:1

C. 5:1; 2:1

D. 2:1; 3:1

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-05 Discuss the problems that governments may encounterin enacting and applying fiscal policy.

Test Bank: I Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy

(Last Word) Which of the following would not help to relieve the Social Securityand Medicare shortfalls?

A. extending the SocialSecurity tax to a higher levelof earnings

B. restricting immigration of skilled working-age adults

increasing the retirement age for collecting Social Security and Medicarebenefits

reducing SocialSecurity and Medicare benefits for wealthier individuals

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-05 Discuss the problems that governments may encounterin enacting and applying fiscal policy.

Test Bank: I Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy

True / False Questions

Expansionary fiscal policy is so named because it involves an expansionof the nation'smoney supply.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscal policy.

Test Bank: I Topic: Fiscal Policy and the AD-AS Model

If the MPC in the economyis 0.75, government could shiftthe aggregate demand curve rightward by \$30 billion by cuttingtaxes by \$10 billion.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscal policy.

Test Bank: I Topic: Fiscal Policy and the AD-AS Model

A contractionary fiscal policy shifts the aggregate demand curve leftward.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscalpolicy.

Test Bank: I Topic: Fiscal Policy and the AD-AS Model

Demand-pull inflation can be restrained by increasing government spending and reducing taxes.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 13-01 Identify and explain the purposes, tools, and limitations of fiscal policy.

Test Bank: I Topic: Fiscal Policy andtheAD-AS Model

Built-in stability is synonymous with discretionary fiscal policy.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-02 Explain the role ofbuilt-in stabilizers in moderating business cycles.

Test Bank: I Topic: Built-In Stability

The actual budget may be in deficit while the cyclically adjusted budget is in surplus.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-03 Describe how the cyclically adjusted budget reveals the statusof U.S. fiscal policy.

Test Bank: I Topic: Evaluating How Expansionary or Contractionary Fiscal Policy Is Determined

An increase in the cyclical deficits will automatically increase the cyclically adjusted budget deficit.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-02 Explain the role of built-in stabilizers in moderating business cycles.

Test Bank: I Topic: Built-In Stability

Tax revenues automatically increase during economic expansions and decreaseduring recessions.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-02 Explain the role of built-in stabilizers in moderating business cycles.

Test Bank: I Topic: Built-In Stability

The operational lag of fiscal policy refersto the time thatelapses betweenthe beginning of a recession or inflationand the certain awareness that it is actually happening.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-05Discuss the problems that governmentsmay encounter in enactingand applying fiscal policy.

Test Bank: I Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy

The crowding-out effect refers to the possibility that deficitspending may motivate people to increasetheir saving in anticipation of higherfuture taxes.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 13-05Discuss the problems that governmentsmay encounter in enactingand applying fiscal policy.

Test Bank: I Topic: Problems, Criticisms, and Complications of Implementing Fiscal Policy

Fiscal policy is mainly undertaken by the Federal Reserve.

FALSE