Gross Domestic Product Quiz Questions

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Gross Domestic Product Quiz Questions - Quiz

Questions and Answers
  • 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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