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Accumulating debt poses a problem for the US federal government because:
 
a. building roads and bridges do not yield enough benefits for their costs. 
b. it is currently in danger of defaulting on debt. 
c. a large debt to GDP ratio causes crowding out. 
d. the debt ultimately has to be paid off

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Alice Sejake
Alice SejakeLv10
26 Mar 2021

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Related questions

40. If the inflation rate falls below the rate that is expected, which of the following will happen?
A) inflationary expectations will increase and the Phillips curve will shift downward in the short run
B) inflationary expectations will decrease and the short-run Phillips curve will shift downward in the long run
C) inflationary expectations will decrease and the short-run Phillips curve will shift upward in the long run
D) inflationary expectations will increase and the Phillips curve will shift upward in the short run
E) inflationary expectations will decrease and the Phillips curve will shift downward in the short run

41. Which case represents the largest increase in the real national debt?
A) the price level increases by 500 percent and nominal debt increases by 500 percent
B) the price level increases by 200 percent and nominal debt increases by 600 percent
C) the price level decreases by 50 percent and nominal debt increases by 300 percent
D) the price level increases by 400 percent and nominal debt increases by 200 percent
E) the price level decreases by 90 percent and nominal debt increases by 200 percent

42. Which of the following is a transfer payment?
A) the federal government's budget deficit
B) unemployment compensation payments
C) military spending
D) wages of government employees
E) the excise tax on gasoline

43. One problem with using countercyclical fiscal policy is that
A) it may take months for the policy to be enacted
B) the policy may take effect too quickly
C) the money supply cannot be changed until several months have passed
D) tax cuts must be matched with spending changes
E) it has no effect on consumption spending

44. Suppose you are the president of a large bank. In which situation would you be most reluctant to loan money to a country?
A) its nominal debt is $10 trillion
B) its nominal debt is 1 percent of nominal GDP
C) its nominal deficit is $150 billion
D) its real deficit is 100 percent of real GDP
E) its real debt is 1 percent of real GDP

45. The national debt
A) can be paid off without major economic effects
B) need never be paid off
C) is no more serious a problem than is a corporation's debt
D) should not exist during a period of economic prosperity
E) is the simple sum of post budget deficits

46. Tax avoidance
A) reduces the difference between the average and marginal tax rates
B) increases federal revenue when it reduces the need for IRS workers
C) reduces federal revenue but does not affect tax progressivity
D) makes the tax system less progressive
E) makes the tax system more progressive

47. The national debt
A) is currently greater than the annual federal deficit
B) is reduced by the revenue generated from the federal deficit
C) decreases as the deficit is reduced
D) is a flow variable
E) varies depending on developments in the stock market

48. In the long run,
A) a larger budget deficit means a larger money supply
B) lower investment spending means slower growth of the standard of living
C) a larger budget deficit means higher consumption spending
D) a larger budget surplus means a smaller capital stock
E) government spending has no effect on the budget deficit or surplus

49. In an expansion,
A) federal budget deficits tend to rise
B) federal budget deficits tend to fall
C) the federal debt tends to rise faster than in a recession
D) federal government tax receipts tend to fall
E) there is pressure on the Fed to monetize the debt

50. Which of the following is not considered an automatic stabilizer?
A) food stamp program for people with low incomes
B) welfare program for families with dependent children
C) Medicaid, a health program for the poor
D) financial assistance for disabled people
E) unemployment programs that pay benefits to those who lose their jobs

Moral hazard is not eliminated in debt financing because

A) borrowers have an incentive to assume greater risk than is in the interest of the lender.

B) firms with a great deal of debt often go bankrupt.

C) principal-agent problems are greater with debt financing than with equity financing.

D) the use of restrictive covenants tends to increase moral hazard.

Why are corporations more likely to raise funds externally by debt instead of equity?

A) moral hazard is less of a problem with debt contracts

B) transactions costs tend to be higher in the stock market than bond market

C) to avoid paying dividends

D) interest rates tend to be lower than dividend rates

Which of the following is NOT a bank liability?

A) checkable deposits

B) CDs

C) mortgage loans

D) borrowings from the Federal Reserve

Banks use repurchase agreements to

A) ensure that payments on consumer loans are made on time.

B) borrow funds from business firms or other banks.

C) guard against price fluctuations on long-term bonds.

D) ensure that they always have enough funds on hand to meet their federal tax liabilities.

If a bank has a leverage ratio of 0.1 and a return on capital of 2%, what is its return on equity?

A) 0.2%

B) 2.1%

C) 5%

D) 20%

Which of the following statements about checking deposits is true?

A) It is a liability for both households and banks.

B) It is an asset for both households and banks.

C) It is an asset for households but a liability for a bank.

D) It is a liability for households but an asset for a bank.


1. Which of the following cannot be determined using a production possibility table?
What combination of outputs can be produced.
How much less of one output can be produced if more of another output is produced.
What combination of outputs is best.
How much output can be produced from a given level of inputs.

2. Internal government debt is:
debt owed by citizens to their government.
debt owed by one government to another government.
government debt owed to citizens.
government debt owed to foreigners.

3. In general, budget deficits should:
never be run since they slow economic growth over the long run.
never be run since they crowd out investment in the short run.
be run on a temporary basis whenever the economy is below potential output.
be run on a permanent basis since they can always be financed over and over again.

4. If taxes and government outlays were constant and did not vary with income, then:
passive deficits would increase.
passive deficits would not exist.
structural deficits would increase.
structural deficits would not exist.

5. If the debt of the federal government increases by $10 billion in one year, then the budget:
deficit in that year must be $10 billion.
surplus in that year must be $10 billion.
deficit in that year decreased by $10 billion.
surplus in that year increased by $10 billion.

6. Which of the following would make the impending Social Security problem worse?
Raising income taxes when the baby boomers begin to retire.
Reducing the age at which one is eligible to receive payments.
Reducing Social Security retirement benefits.
Introducing means testing.

7. The price mechanism is: (Points : 5)
not affected by social and political forces.
affected by social but not political forces.
affected by political but not social forces.
affected by both political and social forces.

8. Social forces:
affect the price mechanism through cultural norms.
affect the price mechanism, but not the legal system.
affect the price mechanism through scarcity.
do not affect the price mechanism.

9. Opportunity cost is the same as marginal cost.
True
False

10. Which of the following is a characteristic of a market economy?
Private property.
Government ownership of the means of production.
Distribution according to need.
Tradition determines the what, how, and for whom decisions.

11. Mexico has a comparative advantage in producing corn:
if its opportunity cost of producing corn is higher than the opportunity cost in other countries.
if its opportunity cost of producing corn is the same as the opportunity cost in other countries.
if its opportunity cost of producing corn is lower than the opportunity cost in other countries.
regardless of the opportunity cost in other countries.

12. The opportunity cost for a student of attending college for a year is best measured by the:
benefit received by the student.
tuition paid for the year.
value of the next-best activity forgone by attending college.
total money outlays associated with attending college.

13. A passive deficit is the portion of the deficit that exists when:
the economy is at potential income.
the economy is beneath potential income.
inflation is not fully anticipated.
inflation is fully anticipated.

14. An important international lending institution is the:
IMF.
The Group of Eight.
EU.
WTO.

15. Private property rights:
are essential elements of a market economies.
do not need to be enforced in market economies.
must be established before a socialist economy can function properly.
ensure an equitable distribution of income in market economies.

16. If a country has a comparative advantage in the production of a good, then its resources are better suited to the production of that good than the resources of other countries.
True
False

17. As the interest rate rises, debt service:
decreases.
does not change, but debt increases.
increases.
does not change and neither does the debt.

18. Your opportunity cost of taking this course is:
the tuition you paid for the course.
the benefit of the activity you would have chosen if you had not taken the course.
the benefit you get from taking this course.
the cost of the activity you would have chosen if you had not taken the course.

19. One advantage of a corporation over a sole proprietorship is:
greater accountability.
avoidance of double taxation.
ease of formation.
greater ability to obtain funds.

20. Maintaining objectivity is easiest in:
positive economics.
the art of economics.
normative economics.
it is just as easy in all of the above


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