Gross Domestic Product Quiz Questions
- 1.The financial crisis of 2008 led to massive federal spending in an effort to stimulate the economy. The combination of the new federal spending and the automatic stabilizers led to
- A.
The largest budget deficit since World War II.
- B.
The highest rate of inflation since the Great Depression.
- C.
A higher government debt-to-GDP ratio than at any time in American history.
- D.
A deficit that is expected to remain permanently at ten percent or more of GDP.
- 2.Interest rates on government bonds are relatively low because:
- A.
Interest rates on government bonds are relatively low because:
- B.
The debt-to-GDP ratio is almost zero.
- C.
U.S. government bonds are considered one of the safest assets in the world.
- D.
Many are worried about the U.S. government's defaulting.
- 3.As the interest rate rises, debt service:
- A.
Decreases.
- B.
Does not change, but debt increases.
- C.
Increases.
- D.
Does not change and neither does the debt.
- 4.Debt service payments by the government:
- A.
Are used to purchase goods and services.
- B.
Are a payment for past expenditures.
- C.
Do not burden the generations that must make them.
- D.
Have fallen continuously since World War II.
- 5.What makes it possible for a country to maintain a constant debt-to-GDP ratio and still have continual deficits is:
- A.
Positive private savings.
- B.
Trade surpluses.
- C.
Continual inflation.
- D.
Real economic growth.
- 6.The U.S. Treasury Department reported that in December 2009 the total debt of the United States was approximately $10.7 trillion. The amount of government debt held by private investors was approximately $5.9 trillion. The difference between these two is debt
- A.
Held by U.S financial institutions.
- B.
Held by foreigners
- C.
Held by some parts of the government itself.
- D.
That has been adjusted for the effects of inflation.
- 7.External government debt is:
- A.
Government debt owed to its own citizens.
- B.
Government debt owed to individuals in foreign countries.
- C.
Government debt owed by one branch of the government to another.
- D.
Debt that individuals in foreign countries owe to the U.S. government.
- 8.GDP provides an indication of:
- A.
How much interest will have to be paid on the national debt.
- B.
How big a national debt a country can handle.
- C.
The inflation-adjusted burden of a country's debt.
- D.
How much of a country's debt is external rather than internal
- 9.Which of the following is a reason why government debt is different from individual debt?
- A.
Government has fewer sources of income to finance its debt than individuals.
- B.
Government can create money to finance its debt.
- C.
Government debt can be owed to foreigners, unlike the debt of individuals.
- D.
Government debt must be repaid at some point in time.
- 10.GDP provides an indication of:
- A.
How much interest will have to be paid on the national debt.
- B.
How big a national debt a country can handle.
- C.
The inflation-adjusted burden of a country's debt.
- D.
How much of a country's debt is external rather than internal.
- 11.If the debt of the federal government decreases by $20 billion in one year the budget
- A.
Deficit in that year must be $20 billion.
- B.
Surplus in that year must be $20 billion.
- C.
Deficit in that year decreases by $20 billion.
- D.
Surplus in that year increases by $20 billion.
- 12.If government has no debt initially but then has annual revenues of $1.5 billion for 10 years and annual expenditures of $1.6 billion for 10 years, then the government has a:
- A.
Deficit of $100 million per year and a debt of $1 billion.
- B.
Surplus of $100 million per year and a debt of $1 billion.
- C.
Deficit of $100 million and a debt of $1 billion per year.
- D.
Surplus of $100 million and a debt of $1 billion per year.
- 13.If the nominal deficit is $200 billion, the real deficit is $180 billion, and total debt is $2 trillion, then inflation is:
- A.
1 percent.
- B.
1 percent.
- C.
4 percent.
- D.
5 percent.
- 14.Which of the following will decrease the nominal deficit?
- A.
An increase in taxes.
- B.
An increase in government expenditures.
- C.
An increase in interest rates.
- D.
An increase in the debt.
- 15.The passive surplus is $450 billion, potential output is $10 trillion and tax rate is 15 percent. With this information, we can infer that the actual output of this economy is:
- A.
$13 trillion
- B.
$13.5 trillion
- C.
$6 trillion
- D.
$6.5 trillion
- 16.Suppose that the economy has a structural deficit of $200 billion but is running a budget surplus. It follows that:
- A.
There is no passive deficit or surplus.
- B.
There is a passive surplus.
- C.
There is a passive deficit.
- D.
The passive deficit cannot be determined without more information
- 17.The government decides to increase its expenditures by $250. The multiplier in this economy is 4 and the tax rate is 22 percent. The net effect of this expansionary fiscal policy is to:
- A.
Increase the budget deficit by $30.
- B.
Increase the budget deficit by $220.
- C.
Decrease the budget deficit by $30.
- D.
Decrease the budget deficit by $220.
- 18.Suppose potential income is $60 billion, actual income is $40 billion, and expenditures don't vary with income. If the actual budget deficit is $4 billion and the marginal tax rate is 20 percent, the structural deficit:
- A.
Is zero.
- B.
Is between zero and $4 billion.
- C.
Is $4 billion.
- D.
Cannot be determined from the given information.
- 19.If a passive surplus exists, the economy must be:
- A.
At potential income.
- B.
Above potential income.
- C.
Above potential income.
- D.
Experiencing deflation.
- 20.In the long-run framework, deficits reduce:
- A.
Investment.
- B.
Government consumption.
- C.
Taxes.
- D.
Subsidies.
- 21.Suppose you are negotiating a cost of living raise with your boss. Under which of the following circumstances would you ask for the largest raise?
- A.
Federal Reserve policy lowers the unemployment rate below the natural rate.
- B.
Federal Reserve policy raises the unemployment rate above the natural rate.
- C.
Federal Reserve policy targets inflation at its current value.
- D.
Federal Reserve policy targets inflation at levels below its current value.
- 22.
What should the Federal Reserve do if it wants to move from point A to point B in the short-run Phillips curve depicted in the figure above?- A.
Buy treasury bills
- B.
Sell treasury bills
- C.
Lower the discount rate
- D.
Increase the money supply
- E.
Lower taxes
- 23.Suppose workers bargain for a new contract that gives them a 5 percent pay increase over the next year. If they expected no inflation but inflation is in fact 2 percent, inflation makes:
- A.
Both workers and firms worse off.
- B.
Workers worse off and firms better off.
- C.
Workers better off and firms worse off.
- D.
Both workers and firms better off.
- 24.In the long run, the Phillips curve is a ________ at ________.
- A.
Horizontal line; 0% inflation
- B.
Negatively sloped line; the intersection of aggregate demand and short-run aggregate supply
- C.
Vertical line; the natural rate of unemployment
- D.
Vertical line; the expected rate of inflation
- 25.Suppose inflation is expected to be 4 percent but is in fact only 3 percent. This:
- A.
Helps lenders and borrowers.
- B.
Helps lenders but hurts borrowers.
- C.
Helps borrowers but hurts lenders.
- D.
Hurts lenders and borrowers.
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