Macro Chapter 12 Flashcards

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The use of government taxes and spending to alter economic outcomes is known as
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Fiscal policy.
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Which of the following represents the use of fiscal policy to achieve a fiscal stimulus?
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Greater government expenditure or lower taxes.
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If full-employment income and equilibrium income are equal for a country, then a tax cut will result in
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Excess AD.
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Which of the following is an appropriate fiscal policy prescription for the government to follow?
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Deficit reduction when there is excess AD.
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Deficit spending results whenever the government
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Finances current expenditures that exceed current tax revenues.
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Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint?
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. Less government expenditure and higher taxes.
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With greater deficit spending, ceteris paribus,
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Any inflationary gap will become larger.
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If full-employment output exceeds equilibrium output, greater deficit spending will result in
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Smaller recessionary gap.
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With an increase in deficit spending, the
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Aggregate demand curve shifts to the right.
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If the economy is in a recession,
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It is operating inside the production possibilities curve, and the opportunity cost of deficit spending is zero.
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A budget surplus is
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An excess of government revenues over government expenditures in a given time period.
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When there is excess aggregate demand, the appropriate fiscal policy would be for the government to
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Make budget surpluses larger.
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In order to reduce the U.S. debt
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The government should spend less than it collects in tax revenues.
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According to Keynes, an unbalanced budget is appropriate in all of the following situations except when
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The economy is at full employment.
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Which of the following is an argument against balancing the federal budget?
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Doing so may prevent the government from pulling the economy out of recession.
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The fiscal year
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Is the 12-month period used for federal government accounting purposes.
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The fiscal year for the federal government begins on
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October 1.
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The elements of the federal budget not determined by past legislative or executive commitments are
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. Discretionary fiscal spending.
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Discretionary expenditures account for approximately
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One-fifth of the federal budget.
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Much of each year's federal budget is considered \"uncontrollable\" because
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Most of the current revenues and expenditures are the result of decisions made in prior years.
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Uncontrollable government spending includes
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Interest payments on the national debt.
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In order to maintain a balanced budget every year, during a recession the government would have to
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Decrease spending or increase taxes or both.
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Fiscal restraint is
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Tax hikes and/or spending cuts intended to reduce aggregate demand.
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Which of the following is not an automatic stabilizer?
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Defense spending.
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Automatic stabilizers tend to stabilize the level of economic activity because they
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Increase spending during recessions and reduce spending during inflationary periods.
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Automatic stabilizers
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Help to moderate the extremes of the business cycle.
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Spending for unemployment compensation and welfare benefits increase automatically
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When the economy goes into recession.
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Which of the following is an automatic stabilizer that reduces tax receipts during a recession?
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Corporate and individual income taxes.
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All of the following contribute to greater deficits when unemployment rises and reduce the deficit during an inflationary gap except for
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U.S. exports.
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A progressive income tax system is particularly effective as an automatic stabilizer because
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In a booming economy, taxpayers move into higher tax brackets, which restrains their spending.
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Which of the following is a possible effect of automatic stabilizers on the federal budget?
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decrease in the deficit during an expansion.
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An increase in unemployment, ceteris paribus,
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Reduces a budget surplus.
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Which of the following is most likely to increase a federal budget surplus?
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A higher inflation rate and a lower unemployment rate.
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Which of the following is most likely to reduce a federal budget surplus?
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A recession.
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Which of the following might encourage the government to let inflation rates rise?
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A higher inflation rate reduces the budget deficit.
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For the convenience of analyzing the part of the deficit that is sensitive to fiscal policy, the actual deficit is divided into which of the following components?
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Structural and cyclical deficits.
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In contrast to the structural deficit, the cyclical deficit reflects
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Fluctuations in economic activity.
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Which of the following results from a change in the business cycle, ceteris paribus?
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Cyclical unemployment.
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If the cyclical deficit shrank by $60 billion while the structural deficit increased by $35 billion, the total deficit
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Fell by $25 billion.
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If the budget deficit for each year is held to a constant nominal value during constant inflationary times, then the inflation-corrected or real value of the total debt would
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Rise at a decreasing rate.
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The structural deficit represents
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Federal revenues minus federal expenditures at full employment under current fiscal policy.
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If the structural deficit is zero,
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At full employment, the budget is balanced.
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Suppose the economy is at a full-employment GDP of $1 trillion and the tax revenue received by the federal government is always one-fifth of GDP. If planned government expenditure is $300 billion, the structural
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Deficit is $100 billion.
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If the total budget deficit is $200 billion and the deficit at full employment is $120 billion, then the
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Cyclical deficit is $80 billion.
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The largest percentage of U.S. national debt to GDP occurred during
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World War II.
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Which of the following is the best indication that the government is pursuing restrictive fiscal policy?
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The structural deficit decreases.
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A decrease in private sector borrowing and spending caused by increased government borrowing is
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. Crowding out.
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Crowding out is most likely to occur when the federal government
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Runs a deficit and sells bonds to make up the difference.
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Increased government purchases crowd out private purchases whenever the economy is
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On the production possibilities curve.
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Which of the following is not true when the economy is fully employed and government bonds are sold to finance greater government spending?
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The government is running a cyclical deficit.
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The opportunity cost of the debt is
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Less of an issue if the economy is below full employment since crowding out is less likely to occur.
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An opportunity cost that occurs because of increased government spending is
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The crowding out of private sector output.
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The government can use a budget surplus to do all of the following except
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Decrease the money supply.
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If there was a federal budget surplus and the government decided to either increase spending or decrease taxes
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The budget surplus would get smaller.
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An increase in private sector borrowing and spending caused by decreased government borrowing is known as
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Crowding in.
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Which of the following would occur if the federal government decided to use a budget surplus to reduce the existing debt?
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Crowding in and private sector output would increase.
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Crowding in is the result of
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Falling interest rates.
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The national debt is
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The accumulation of all annual deficit and surplus flows.
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The U.S. government incurred a national debt for the first time during
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The Revolutionary War.
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The debt would cease to grow if
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The federal government balanced its budget.
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The national debt
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Equals the dollar amount of outstanding U.S. Treasury bonds.
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The fiscal agent of the U.S. government is the
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U.S. Treasury.
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In the 20th century, the ratio of the U.S. debt to GDP has
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Risen in response to wars.
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A measure of the burden of continual deficit financing over time is the ratio of
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The debt to the GDP.
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The national debt increased by nearly $2 trillion in the 1980s because of all of the following except
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College financing.
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Debt accumulation by the U.S. government in the 1980s
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Exceeded the debt the country had accumulated over the preceding 200 years.
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Which of the following contributed to the increase in the national debt during the 1990s?
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The bailout of failed savings and loan associations.
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Policies designed to pay off the national debt will result in:
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A smaller level of aggregate demand
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The U.S. federal debt that accumulated between 1970 and 2010
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Is an asset and a liability for the U.S. economy.
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An obligation to make future payment is
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. A liability.
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When the Federal Reserve System buys bonds in the open market, the national debt
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Is not affected.
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Internal ownership of the national debt occurs when U.S. Treasury bonds are purchased b all of the following except
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Foreign countries that we trade with.
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Federal agencies hold roughly _____ percent of all outstanding Treasury bonds.
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16
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Which of the following owns the largest portion of the U.S. national debt?
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The federal government.
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The largest single holder of the U.S. national debt after the U.S. government is
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The foreign sector.
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The U.S. private sector holds about _____ percent of outstanding U.S. Treasury bonds.
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24
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U.S. Treasury bonds owned by U.S. households, institutions, and government entities are referred to as
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Internal debt.
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Foreign households and institutions hold approximately _____ percent of the U.S. national debt.
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31
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When the U.S. Treasury issues new bonds to replace bonds that have matured, it is engaging in
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Debt refinancing.
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Interest payments on the national debt
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Are a redistribution of income from taxpayers to bondholders.
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The \"real burden\" of the debt is directly related to
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The idea of opportunity cost.
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The cost of servicing the debt may increase if
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Interest rates rise.
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Debt service
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. Refers to the annual interest payments on the debt.
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Selling bonds to finance new government debt leads to an opportunity cost that is
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The same as financing government debt with taxes. D. Dependent on who buys the bonds.
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Deficit financing tends to change the mix of output in the direction of more
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Public sector goods.
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The burden of the internal portion of the debt is incurred
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When the debt-financed activity takes place.
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If debt-financed less productive government spending crowds out more productive private investment, future generations will bear
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. Some of the burden of the debt due to lower productive capacity.
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If deficit spending does not contribute to public investment and crowds out private investment, then
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The rate of economic growth will decline, ceteris paribus.
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Which of the following statements about the U.S. national debt is not correct?
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The primary economic costs of the debt are being passed on to future generations.
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External debt of the United States refers to
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U.S. government debt held by foreigners.
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At the time it occurs, external financing of the debt allows the economy to
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Consume beyond the production possibilities curve.
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The burden of the debt is passed on to future generations when the debt is held by
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Foreign households.
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A deficit ceiling directly limits
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The rate at which government spending can exceed government revenue.
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The Gramm-Rudman-Hollings Act of 1985 created a
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. Deficit ceiling.
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Which of the following is not an explanation of why the Gramm-Rudman-Hollings Act proved inadequate in reducing the deficit?
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Congress controls only the cyclical portion of government spending.
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If Congress failed to keep the deficit below the ceiling, then the Gramm-Rudman-Hollings Act required
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Automatic spending cuts.
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Debt ceilings are designed to
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Reduce the deficit.
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To pay back Social Security loans, Congress could do all of the following except
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Sell fewer U.S. Treasury bonds.
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