Question 1

The table below shows government purchases (G) ,net tax revenues (T) ,and debt-service payments (iD) over a 4-year period for a hypothetical economy.All figures are in billions of dollars.Assume the stock of debt at the end of 2015 is $500 billion.  TABLE 31-1 Refer to Table 31-1.What is the stock of debt at the end of 2018?

Accepted Answer

A)  $494 billion
B)  $500 billion
C)  $506 billion
D)  $528 billion
E)  $552 billionF) None of the above
G) A) and D)

Question 2

Consider two economies,A and B.Economy A has a stock of government debt equal to $800 billion and a debt-to-GDP ratio of 10%.Economy B has a stock of government debt equal to $22 billion and a debt-to-GDP ratio of 80%.What is the GDP for each economy?

Accepted Answer

A)  Economy A: GDP = $8 trillion Economy B: GDP = $27.5 billion
B)  Economy A: GDP = $80 billion Economy B: GDP = $18.7 billion
C)  Economy A: GDP = $80 trillion Economy B: GDP = $275 billion
D)  Economy A: GDP = $800 billion Economy B: GDP = $22 billion
E)  Economy A: GDP = $8 trillion Economy B: GDP = $2.75 billionF) C) and D)
G) D) and E)

Question 3

Consider the following data about government debt and deficit in a given year: - real interest rate on government bonds = 2%
- growth rate of real GDP = 3%
- current debt-to-GDP ratio = 50%
- primary budget deficit = 0
Over this one-year period,the debt-to-GDP ratio will have

Accepted Answer

A)  remained unchanged.
B)  risen by 50%.
C)  fallen by 50%.
D)  risen by 0.5 percentage points.
E)  fallen by 0.5 percentage points.F) A) and B)
G) B) and C)

Question 4

If the government's total budget surplus is $10 billion and its debt-service payments are $8 billion,then its primary budget surplus is

Accepted Answer

A)  $2 billion.
B)  $8 billion.
C)  $10 billion.
D)  $18 billion.
E)  -$2 billion.F) A) and B)
G) C) and D)

Question 5

The table below shows government purchases (G) ,net tax revenues (T) ,and debt-service payments (iD) over a 4-year period for a hypothetical economy.All figures are in billions of dollars.Assume the stock of debt at the end of 2015 is $500 billion.  TABLE 31-1 Refer to Table 31-1.What is the primary budget deficit in 2016?

Accepted Answer

A)  -$12 billion
B)  $12 billion
C)  -$6 billion
D)  $6 billion
E)  There is no primary budget deficit.F) A) and E)
G) A) and D) A

Question 6

Consider the following variables,defined as follows: d = debt-to-GDP ratio
X = primary budget deficit as a percentage of GDP
R = real interest rate on government bonds
G = growth rate of real GDP
Which of the following expressions correctly describes the change in the debt-to-GDP ratio?

Accepted Answer

A)  Δd = x + (r - g) + d
B)  Δd = x + (r - g) × d
C)  Δd = x(r - g) + d
D)  Δd = x(g - r) - d
E)  Δd = x + (g - r) × dF) A) and E)
G) A) and B)

Question 7

Consider the following data about government debt and deficit in a given year: - real interest rate on government bonds = 3%
- growth rate of real GDP = 1%
- current debt-to-GDP ratio = 40%
- primary budget deficit as a percentage of GDP = 2%
Over this one-year period,the debt-to-GDP ratio will have risen by

Accepted Answer

A)  82 percentage points.
B)  8.2 percentage points.
C)  0.82 percentage points.
D)  2.8 percentage points.
E)  0.28 percentage points.F) B) and C)
G) None of the above

Question 8

Until the onset of the most recent recession in 2009,Canadian governments (federal and provincial) had been running budget surpluses for about 10 years.Economic theory suggests that,other things being equal,these budget surpluses will lead to

Accepted Answer

A)  a rise in national saving,a fall in interest rates and a "crowding in" of investment and net exports.
B)  a fall in national saving,a rise in interest rates and a "crowding out" of investment and net exports.
C)  an appreciation of the domestic currency and a fall in Canada's net exports.
D)  a depreciation of the domestic currency and a fall in Canada's net exports.
E)  a rise in national saving,a rise in interest rates and a "crowding out" of investment and net exports.F) C) and E)
G) A) and E)

Question 9

In every year between 1998 and 2008,the Canadian federal government had a

Accepted Answer

A)  budget deficit,indicating that even deep cuts in government spending were not sufficient to alleviate the problem.
B)  primary deficit,indicating that tax revenues were insufficient to cover discretionary government expenditures.
C)  budget deficit,which contributed to a growing stock of government debt.
D)  primary surplus but overall deficit,indicating that tax revenues were more than sufficient to cover discretionary government expenditures.
E)  budget surplus,indicating that tax revenues were more than sufficient to cover total government expenditures.F) None of the above
G) A) and B)

Question 10

There is a long-term burden of government debt in a closed economy when

Accepted Answer

A)  foreign owners of Canadian debt demand repayment.
B)  it is no longer possible to find individuals in the private sector willing to finance the debt.
C)  the burden of the debt is being borne by the current generation rather than future generations.
D)  present consumption and government expenditure are not reduced because of future crowding-out.
E)  the stock of physical productive capital is reduced because of crowding out.F) D) and E)
G) A) and B)

Question 11

The Canadian federal government's debt-to-GDP ratio climbed steadily from

Accepted Answer

A)  1939 to the late 1980s.
B)  1960 to the late 1990s.
C)  1975 to the mid-1990s.
D)  1995 to 2009.
E)  2000 to 2015.F) A) and E)
G) D) and E)

Question 12

If the government's total budget deficit is $24 billion and its debt-service payments are $20 billion,then its ________ is $4 billion.

Accepted Answer

A)  cyclically adjusted deficit
B)  primary budget deficit
C)  primary budget surplus
D)  government expenditure
E)  total tax revenueF) A) and C)
G) A) and B)

Question 13

Suppose the government's debt-to-GDP ratio on January 1 of Year 1 is 32%.The change in the debt-to-GDP ratio during Year 1 is -0.037.On January 1 of Year 2,the government's debt-to-GDP ratio is

Accepted Answer

A)  31.963%.
B)  32.037%.
C)  28.3%.
D)  35.7%.
E)  Not enough information to determine.F) All of the above
G) None of the above

Question 14

The proposition that increases in government budget deficits in an open economy tend to crowd out net exports relies on the idea that

Accepted Answer

A)  government demand for labour tends to create manpower shortages in export industries.
B)  much government expenditure is typically directed towards imported goods and services.
C)  the resulting increase in interest rates attracts an inflow of financial capital that causes the currency to appreciate.
D)  the rise in private-sector wealth associated with the rising stock of bonds leads to a fall in the saving rate and therefore a current account deficit.
E)  there is downward pressure on interest rates that causes the currency to depreciate.F) B) and E)
G) A) and E)

Question 15

The government's primary budget deficit (or surplus) is the difference between the

Accepted Answer

A)  non-interest expenditures and interest payments.
B)  interest payments and revenues.
C)  overall budget deficit (or surplus) and debt-service payments.
D)  overall budget deficit (or surplus) between one year and the next.
E)  overall government expenditures and revenues.F) None of the above
G) B) and C)

Question 16

The data below provides the Actual and Structural Budget Deficits,as a percentage of real GDP,for Canada between 1999 and 2010.Note that a negative value in the table indicates a budget surplus.  TABLE 31-2 Refer to Table 31-2.Based on the data in the table,over which of the following intervals was fiscal policy expansionary?

Accepted Answer

A)  1999-2003 because the structural budget deficit is falling
B)  1999-2003 because the structural budget deficit is rising
C)  2008-2010 because the actual deficit is greater than zero
D)  2004-2007 because the structural budget deficit is fairly stableE) All of the above
F) A) and C)

Question 17

Consider the government's budget deficit function,graphed with the budget deficit on the vertical axis and real GDP on the horizontal axis.The vertical position (or height) of the budget deficit function is determined by

Accepted Answer

A)  the government's fiscal policies.
B)  nominal GDP.
C)  the interest rate times taxes.
D)  the purchase and sale of government securities on the open market.
E)  the stock of government debt minus government spending.F) A) and B)
G) A) and C) A

Question 18

The government's primary budget deficit (or surplus) is the

Accepted Answer

A)  non-interest expenditures and interest payments.
B)  sum of total government expenditures and revenues.
C)  sum of interest payments and revenues.
D)  overall budget deficit between two fiscal years.
E)  overall budget deficit (or surplus) excluding debt-service payments.F) C) and E)
G) A) and E)

Question 19

Consider an open-economy AD/AS macro model.An expansionary fiscal policy will generally increase the government's budget ________ and also tends to ________ and thus ________ net exports.

Accepted Answer

A)  deficit; appreciate the currency; decrease
B)  surplus; depreciate the currency; increase
C)  deficit; appreciate the currency; increase
D)  surplus; appreciate the currency; decrease
E)  deficit; depreciate the currency; decreaseF) B) and E)
G) C) and D) A

Question 20

What is the difference between the government's debt and the government's deficit?

Accepted Answer

A)  The debt is the annual shortfall of revenues minus disbursements whereas the deficit is the accumulation of past debts.
B)  The debt is the amount the government pays in interest payments whereas the deficit has not yet incurred interest charges.
C)  The debt is the amount payable to the Bank of Canada whereas the deficit is the annual shortfall of revenue minus disbursements.
D)  The debt is the accumulation of past deficits whereas the deficit is the annual shortfall between revenues and disbursements.
E)  The debt is the difference between tax revenues and government expenditures whereas the deficit is the difference between tax revenues and borrowing.F) A) and B)
G) C) and D)

Exam 31: Government Debt and Deficits

Correct Answer
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Consider two economies,A and B.Economy A has a stock of government debt equal to $800 billion and a debt-to-GDP ratio of 10%.Economy B has a stock of government debt equal to $22 billion and a debt-to-GDP ratio of 80%.What is the GDP for each economy?

Correct Answer
verified

Consider the following data about government debt and deficit in a given year: - real interest rate on government bonds = 2% - growth rate of real GDP = 3% - current debt-to-GDP ratio = 50% - primary budget deficit = 0 Over this one-year period,the debt-to-GDP ratio will have

Correct Answer
verified

If the government's total budget surplus is $10 billion and its debt-service payments are $8 billion,then its primary budget surplus is

Correct Answer
verified

Correct Answer
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A

Consider the following variables,defined as follows: d = debt-to-GDP ratio X = primary budget deficit as a percentage of GDP R = real interest rate on government bonds G = growth rate of real GDP Which of the following expressions correctly describes the change in the debt-to-GDP ratio?

Correct Answer
verified

Correct Answer
verified

Until the onset of the most recent recession in 2009,Canadian governments (federal and provincial) had been running budget surpluses for about 10 years.Economic theory suggests that,other things being equal,these budget surpluses will lead to

Correct Answer
verified

In every year between 1998 and 2008,the Canadian federal government had a

Correct Answer
verified

There is a long-term burden of government debt in a closed economy when

Correct Answer
verified

The Canadian federal government's debt-to-GDP ratio climbed steadily from

Correct Answer
verified

If the government's total budget deficit is $24 billion and its debt-service payments are $20 billion,then its ________ is $4 billion.

Correct Answer
verified

Suppose the government's debt-to-GDP ratio on January 1 of Year 1 is 32%.The change in the debt-to-GDP ratio during Year 1 is -0.037.On January 1 of Year 2,the government's debt-to-GDP ratio is

Correct Answer
verified

The proposition that increases in government budget deficits in an open economy tend to crowd out net exports relies on the idea that

Correct Answer
verified

The government's primary budget deficit (or surplus) is the difference between the

Correct Answer
verified

Correct Answer
verified

Consider the government's budget deficit function,graphed with the budget deficit on the vertical axis and real GDP on the horizontal axis.The vertical position (or height) of the budget deficit function is determined by

Correct Answer
verified
A

The government's primary budget deficit (or surplus) is the

Correct Answer
verified

Consider an open-economy AD/AS macro model.An expansionary fiscal policy will generally increase the government's budget and also tends to and thus net exports.

Correct Answer
verified
A

What is the difference between the government's debt and the government's deficit?

Correct Answer
verified

Exam 31: Government Debt and Deficits

Correct AnswerverifiedShow Answer

Consider two economies,A and B.Economy A has a stock of government debt equal to $800 billion and a debt-to-GDP ratio of 10%.Economy B has a stock of government debt equal to $22 billion and a debt-to-GDP ratio of 80%.What is the GDP for each economy?

Correct AnswerverifiedShow Answer

Consider the following data about government debt and deficit in a given year: - real interest rate on government bonds = 2% - growth rate of real GDP = 3% - current debt-to-GDP ratio = 50% - primary budget deficit = 0 Over this one-year period,the debt-to-GDP ratio will have

Correct AnswerverifiedShow Answer

If the government's total budget surplus is $10 billion and its debt-service payments are $8 billion,then its primary budget surplus is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

Consider the following variables,defined as follows: d = debt-to-GDP ratio X = primary budget deficit as a percentage of GDP R = real interest rate on government bonds G = growth rate of real GDP Which of the following expressions correctly describes the change in the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Until the onset of the most recent recession in 2009,Canadian governments (federal and provincial) had been running budget surpluses for about 10 years.Economic theory suggests that,other things being equal,these budget surpluses will lead to

Correct AnswerverifiedShow Answer

In every year between 1998 and 2008,the Canadian federal government had a

Correct AnswerverifiedShow Answer

There is a long-term burden of government debt in a closed economy when

Correct AnswerverifiedShow Answer

The Canadian federal government's debt-to-GDP ratio climbed steadily from

Correct AnswerverifiedShow Answer

If the government's total budget deficit is $24 billion and its debt-service payments are $20 billion,then its ________ is $4 billion.

Correct AnswerverifiedShow Answer

Suppose the government's debt-to-GDP ratio on January 1 of Year 1 is 32%.The change in the debt-to-GDP ratio during Year 1 is -0.037.On January 1 of Year 2,the government's debt-to-GDP ratio is

Correct AnswerverifiedShow Answer

The proposition that increases in government budget deficits in an open economy tend to crowd out net exports relies on the idea that

Correct AnswerverifiedShow Answer

The government's primary budget deficit (or surplus) is the difference between the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Consider the government's budget deficit function,graphed with the budget deficit on the vertical axis and real GDP on the horizontal axis.The vertical position (or height) of the budget deficit function is determined by

Correct AnswerverifiedA

The government's primary budget deficit (or surplus) is the

Correct AnswerverifiedShow Answer

Consider an open-economy AD/AS macro model.An expansionary fiscal policy will generally increase the government's budget ________ and also tends to ________ and thus ________ net exports.

Correct AnswerverifiedA

What is the difference between the government's debt and the government's deficit?

Correct AnswerverifiedShow Answer

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Consider an open-economy AD/AS macro model.An expansionary fiscal policy will generally increase the government's budget and also tends to and thus net exports.

Correct Answer
verified
A

Correct Answer
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