1. The structural deficit is equal to

a. expenditures plus transfers less taxes for the fiscal year in government statistics.
b. expenditures less taxes at some hypothetical high employment level.
c. expenditures plus transfers less taxes at some hypothetical high employment level.
d. expenditures less transfers for the fiscal year in government statistics.

2. The difference between real interest rates and nominal interest rates is

a. a risk premium.
b. an inflation premium.
c. the tax rate on borrowers.
d. the rate of growth of GDP.

3. Southeast Asia in 1997 faced a debt problem more serious than the U.S. debt problem because most Southeast Asian countries were obligated to repay their debt in

a. U.S. dollars.
b. their own currencies.
c. a relatively short period of time.
d. large installments.

4. Assume that a contractionary monetary policy has shifted the aggregate demand curve in the figure below from D₀D₀ to D₁D₁. Fiscal authorities who wish to restore real GDP to the full-employment level will

a. run a budget surplus by increasing taxes or cutting government spending.
b. run a balanced budget to prevent the interest rate from rising and cutting off investment.
c. run a budget deficit by cutting taxes or increasing government spending.
d. ignore the change in monetary policy since it has no effect on fiscal policy.

5. The argument that budget deficits are inflationary is

a. always correct.
b. correct only when the deficit is monetized.
c. correct only when the aggregate supply curve is horizontal.
d. correct only when the aggregate supply curve is upward sloping.

6.The figure below shows the impact of deficit spending and the corresponding economic expansion on the demand curve for money. If the Federal Reserve does not want interest rates to rise, it will

a. shift the money supply curve to the right by monetizing the deficit.
b. shift the money supply curve to the left by open market sales of government securities.
c. maintain the current targets for both M₁ and M₂ money stocks.
d. engage in contractionary monetary policy, such as increases in the discount rate.

7. If the economy is near full employment and Congress cuts taxes, the proper monetary policy should be

a. expansionary to keep the economy fully employed.
b. expansionary to counteract the increased deficit.
c. contractionary to shift the aggregate demand curve outward.
d. contractionary to counteract the effects of fiscal policy.

8. A federal budget deficit places a genuine burden on future generations when

a. the crowding-out effect is stronger than the crowding-in effect.
b. the crowding-in effect is stronger than the crowding-out effect.
c. the crowding-out and crowding-in effects work in opposite directions.
d. the crowding-out and crowding-in effects operate in the same direction.

9. Is the national debt a burden to our descendants?

a. No, as long as foreigners own a significant share of the national debt.
b. No, as long as the national debt is owned purely by U.S. citizens.
c. Yes, debt is always a burden to future generations.
d. Yes, unless foreigners increase their share of the national debt.

10. In the 1990s the changes in the budget deficit and the expanding economy were the result of

a. Deficit reduction and expansionary monetary policy.
b. Larger deficits and contractionary monetary policy.
c. Larger deficits and expansionary monetary policy.
d. Deficit reduction and contractionary monetary policy.

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