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1、Chapter 20Deficit FinanceMultiple Choice Questions1.When a model takes into account the fact that several different generations may coexist simultaneously, this is known as a(n)A.neoclassical model.B.life-cycle model.C.overlapping generation model.D.crowding-out model.2.By the end of 2011, the feder
2、al debt was aboutA.$20 billion.B.$80.6 billion.C.$1 trillion.D.$10.1 trillion.3.Because of the differing account conventions, there is a great deal of arbitrariness in a number that purports to beA.the deficit.B.the surplus.C.the debt.D.all of these answer options are correct.4.During the period fro
3、m 1999 - 2008, federal budget deficitsA.were never calculated.B.fell dramatically.C.increased as a percentage of GDP.D.can be regarded as structural.5.The purpose of functional finance is toA.decrease deficits through monetary policy.B.use fiscal policy to keep aggregate demand at the desired level,
4、 regardless of the impact on deficits.C.tax corporate income first at the corporate level, and then again when it is distributed to shareholders.D.use monetary policy to keep deficits stable over time.6.High real interest ratesA.increase the demand for the domestic currency by foreigners.B.cause dec
5、reased job opportunity.C.cause worker productivity to decrease.D.crowd out interest-sensitive expenditures.7.When government borrowing decreases private investment by raising the market interest rate, this is known asA.the Directors Law.B.crowding out.C.positive economics.D.the Ramsey Rule.8.At a gi
6、ven point in time, if all past deficits and surpluses were added, we would get theA.Ricardian model.B.debt.C.crowding-out model.D.total amount of excess burden.9.When the government borrows in the market, itA.does not have to pay interest.B.is not required to pay back the entire principle.C.can get
7、indefinite extensions on the loan.D.all of these answer options are correct.E.none of these answer options are correct.10.InflationA.increases the real value of the debt.B.has no impact on the debt.C.decreases the real value of the debt.D.is always factored into any calculations of deficits or surpl
8、uses.11.The portion of a governments indebtedness owed to foreigners isA.external debt.B.internal debt.C.not recoverable.D.net debt.12.Which one of the following statements is true?A.A budget surplus will reduce national saving.B.A budget deficit decreases national saving.C.A budget deficit will dec
9、rease interest rates.D.A budget deficit increases national savings.13.According to a model of intergenerational equity, if future generations are expected to be better off than the current generation, transfers shouldA.go from the richer generation to the poorer generation.B.not be done at all.C.go
10、from the poorer generation to the richer generation.D.be weighted by increases in the inflation rate.14.According to the Ricardian view of government deficits,A.any future burden of tax financing should be ignored.B.government deficits reduce interest rates.C.taxpayers are less capable of saving whe
11、n debt finance is used rather than tax finance.D.the private sector supply of loanable funds will increase in the face of government deficits.15.The burden of the debt can be viewed asA.a moral question.B.a political question.C.a financial question.D.all of these answer options are correct.16.Lerner
12、s view on debt financing isA.Future generations bear a burden of external debt.B.Burden of debt can be transferred across generations.C.Internal debt creates no burden for the future generations.D.Government debt crowds-out the available funds for private sector.17.The burden of the debt does not de
13、pend on whether debt finance crowds out private investment.A.TrueB.FalseC.Uncertain18.The level of economic activity in a given year will cause the budget deficit to vary.A.TrueB.FalseC.Uncertain19.The burden of debt is borne by future generations.A.TrueB.FalseC.Uncertain20.The United States has not
14、 had a surplus in the last 30 years.A.TrueB.FalseC.Uncertain21.High interest rates contribute to a lower federal budget deficit.A.TrueB.FalseC.Uncertain22.From an efficiency standpoint, one must compare the excess burdens of tax and debt finance.A.TrueB.FalseC.Uncertain23.Surpluses will help future
15、generations more than deficits will hurt future generations due to inflation and taxes.A.TrueB.FalseC.Uncertain24.In the year 2008, nearly half of all privately held federal debt was held by foreign investors.A.TrueB.FalseC.Uncertain25.Total Government Debt is the sum of previous surplus and deficit
16、s.A.TrueB.FalseC.Uncertain26.Ricardian view on debt is that the form of government finance is irrelevant.A.TrueB.FalseC.Uncertain27.Most economists - both liberals and conservatives - believe a balanced budget amendment is an ill-conceived idea.A.TrueB.FalseC.UncertainEssay Questions28.Refer to Figu
17、re 20.3 below. Suppose the equation that equates excess burden to the tax rate can be written as EB = t2, where EB is excess burden and t is the tax rate.(A) Suppose the tax rate t is initially 12 percent. How much excess burden is generated?(B) If the tax rate doubles to 24 percent, what happens to
18、 excess burden?29.Suppose, in 2008, the federal debt was $5 trillion. That year, the United States ran a deficit of $455 billion. During the course of the year, the inflation rate was 3.8%. How much is the inflation tax?30.You make a loan to the government of $100. The government promises to pay you
19、 back some sum of money in two years. The interest rate will be 4 percent over that period, but inflation will be 4 percent. How much will you require that the government pay you in two years in the absence of any inflation? With inflation?31.If raising taxes or borrowing are your only two choices o
20、f financing current expenditures, which would you choose, and why, if you were in charge of setting policy?32.We have learned from this chapter that the real value of the debt is eroded by inflation and may be overestimated because of it and other factors. Do you feel that the debt will be a major c
21、oncern during your working lifetime and retirement?33.If we assume that government borrowing crowds out private investment, then future generations will have a smaller capital stock. Ricardos view is that this will not be the case, because people are forward looking. Do you agree?Chapter 20 Deficit
22、Finance Answer KeyMultiple Choice Questions1.When a model takes into account the fact that several different generations may coexist simultaneously, this is known as a(n)A.neoclassical model.B.life-cycle model.C.overlapping generation model.D.crowding-out model.AACSB: Reflective ThinkingAccessibilit
23、y: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: The Burden of the Debt2.By the end of 2011, the federal debt was aboutA.$20 billion.B.$80.6 billion.C.$1 trillion.D.$10.1 trillion.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: How B
24、ig is the Debt?3.Because of the differing account conventions, there is a great deal of arbitrariness in a number that purports to beA.the deficit.B.the surplus.C.the debt.D.all of these answer options are correct.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty
25、: 1 EasyTopic: Overview4.During the period from 1999 - 2008, federal budget deficitsA.were never calculated.B.fell dramatically.C.increased as a percentage of GDP.D.can be regarded as structural.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: How
26、Big is the Debt?5.The purpose of functional finance is toA.decrease deficits through monetary policy.B.use fiscal policy to keep aggregate demand at the desired level, regardless of the impact on deficits.C.tax corporate income first at the corporate level, and then again when it is distributed to s
27、hareholders.D.use monetary policy to keep deficits stable over time.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: To Tax or to Borrow6.High real interest ratesA.increase the demand for the domestic currency by foreigners.B.cause decreased job op
28、portunity.C.cause worker productivity to decrease.D.crowd out interest-sensitive expenditures.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: The Burden of the Debt7.When government borrowing decreases private investment by raising the market inte
29、rest rate, this is known asA.the Directors Law.B.crowding out.C.positive economics.D.the Ramsey Rule.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: The Burden of the Debt8.At a given point in time, if all past deficits and surpluses were added, w
30、e would get theA.Ricardian model.B.debt.C.crowding-out model.D.total amount of excess burden.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: How Big is the Debt?9.When the government borrows in the market, itA.does not have to pay interest.B.is no
31、t required to pay back the entire principle.C.can get indefinite extensions on the loan.D.all of these answer options are correct.E.none of these answer options are correct.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: The Burden of the Debt10.I
32、nflationA.increases the real value of the debt.B.has no impact on the debt.C.decreases the real value of the debt.D.is always factored into any calculations of deficits or surpluses.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: How Big is the De
33、bt?11.The portion of a governments indebtedness owed to foreigners isA.external debt.B.internal debt.C.not recoverable.D.net debt.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: The Burden of the Debt12.Which one of the following statements is tru
34、e?A.A budget surplus will reduce national saving.B.A budget deficit decreases national saving.C.A budget deficit will decrease interest rates.D.A budget deficit increases national savings.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: UnderstandDifficulty: 2 MediumTopic: The Bur
35、den of the Debt13.According to a model of intergenerational equity, if future generations are expected to be better off than the current generation, transfers shouldA.go from the richer generation to the poorer generation.B.not be done at all.C.go from the poorer generation to the richer generation.
36、D.be weighted by increases in the inflation rate.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: UnderstandDifficulty: 2 MediumTopic: To Tax or to Borrow14.According to the Ricardian view of government deficits,A.any future burden of tax financing should be ignored.B.government d
37、eficits reduce interest rates.C.taxpayers are less capable of saving when debt finance is used rather than tax finance.D.the private sector supply of loanable funds will increase in the face of government deficits.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: UnderstandDifficul
38、ty: 2 MediumTopic: The Burden of the Debt15.The burden of the debt can be viewed asA.a moral question.B.a political question.C.a financial question.D.all of these answer options are correct.AACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: UnderstandDifficulty: 2 MediumTopic: To Ta
39、x or to Borrow16.Lerners view on debt financing isA.Future generations bear a burden of external debt.B.Burden of debt can be transferred across generations.C.Internal debt creates no burden for the future generations.D.Government debt crowds-out the available funds for private sector.AACSB: Reflect
40、ive ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: The Burden of the Debt17.The burden of the debt does not depend on whether debt finance crowds out private investment.A.TrueB.FalseC.UncertainAACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: Und
41、erstandDifficulty: 2 MediumTopic: The Burden of the Debt18.The level of economic activity in a given year will cause the budget deficit to vary.A.TrueB.FalseC.UncertainAACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: The Burden of the Debt19.The bu
42、rden of debt is borne by future generations.A.TrueB.FalseC.UncertainAACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: The Burden of the Debt20.The United States has not had a surplus in the last 30 years.A.TrueB.FalseC.UncertainAACSB: Reflective Thi
43、nkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: How Big is the Debt?21.High interest rates contribute to a lower federal budget deficit.A.TrueB.FalseC.UncertainAACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: UnderstandDifficulty: 2 MediumTopic: The
44、 Burden of the Debt22.From an efficiency standpoint, one must compare the excess burdens of tax and debt finance.A.TrueB.FalseC.UncertainAACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: To Tax or to Borrow23.Surpluses will help future generations m
45、ore than deficits will hurt future generations due to inflation and taxes.A.TrueB.FalseC.UncertainAACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: The Burden of the Debt24.In the year 2008, nearly half of all privately held federal debt was held by
46、 foreign investors.A.TrueB.FalseC.UncertainAACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: The Burden of the Debt25.Total Government Debt is the sum of previous surplus and deficits.A.TrueB.FalseC.UncertainAACSB: Reflective ThinkingAccessibility:
47、Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: How Big is the Debt?26.Ricardian view on debt is that the form of government finance is irrelevant.A.TrueB.FalseC.UncertainAACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: The Burden of th
48、e Debt27.Most economists - both liberals and conservatives - believe a balanced budget amendment is an ill-conceived idea.A.TrueB.FalseC.UncertainAACSB: Reflective ThinkingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 EasyTopic: To Tax or to BorrowEssay Questions28.Refer to Figure
49、20.3 below. Suppose the equation that equates excess burden to the tax rate can be written as EB = t2, where EB is excess burden and t is the tax rate.(A) Suppose the tax rate t is initially 12 percent. How much excess burden is generated?(B) If the tax rate doubles to 24 percent, what happens to ex
50、cess burden?(A) When the tax rate is 12 percent, EB is 0.122 = 0.0144.(B) When the tax rate doubles, EB is 0.242 = 0.0576, which is more than double.AACSB: AnalyticBlooms: ApplyDifficulty: 3 HardTopic: To Tax or to Borrow29.Suppose, in 2008, the federal debt was $5 trillion. That year, the United St
51、ates ran a deficit of $455 billion. During the course of the year, the inflation rate was 3.8%. How much is the inflation tax?In order to calculate the Inflation tax, multiply the federal debt by the inflation rate ($5 trillion 0.038) = $190 billion = Inflation Tax. Effectively, the federal deficit is reduced to $455 billion - $190 billion = $365 billion.AACSB: AnalyticBlooms: ApplyDifficulty: 3 HardTopic: How Big is the De
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