Consider an economy that has accumulated a public debt of $1250 billion over the period of its history through the end of fiscal year 2004. In fiscal year 2005 government spending outlays were $0.75 trillion, and its tax receipts were $0.5 trillion. In fiscal year 2006, government spending outlays were $1 trillion and its tax receipts were $0.9 trillion. In 2007, government spending outlays were $1.2 trillion, and its tax receipts were $1.25 trillion. In 2008, government spending outlays were $1 trillion and its tax receipts were $1 trillion, and in 2009, government spending outlays were $1.25 trillion and its tax receipts were $1.1 trillion. First, what is the public debt at the end of fiscal year 2008? Second, what is the public debt at the end of fiscal year 2009? Third, what is the budget situation for fiscal year 2006? Fourth, what is the budget situation for fiscal year 2008? Fifth, if this economy is projected to run yearly deficits over the next 10 years that increase by 2% each year starting after fiscal year 2009, what is the public debt going to be at the end of fiscal year 2019. Finally, why is rising public debt bad for an economy, from an economics perspective?
Consider an economy that has accumulated a public debt of $1250 billion over the period of its history through the end of fiscal year 2004. In fiscal year 2005 government spending outlays were $0.75 trillion, and its tax receipts were $0.5 trillion. In fiscal year 2006, government spending outlays were $1 trillion and its tax receipts were $0.9 trillion. In 2007, government spending outlays were $1.2 trillion, and its tax receipts were $1.25 trillion. In 2008, government spending outlays were $1 trillion and its tax receipts were $1 trillion, and in 2009, government spending outlays were $1.25 trillion and its tax receipts were $1.1 trillion. First, what is the public debt at the end of fiscal year 2008? Second, what is the public debt at the end of fiscal year 2009? Third, what is the budget situation for fiscal year 2006? Fourth, what is the budget situation for fiscal year 2008? Fifth, if this economy is projected to run yearly deficits over the next 10 years that increase by 2% each year starting after fiscal year 2009, what is the public debt going to be at the end of fiscal year 2019. Finally, why is rising public debt bad for an economy, from an economics perspective?
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You hear on the nightly news that the president has vowed to decrease the nation's debt. Both the government and private citizens will have to buckle down and learn to do without, he says.
In order to reduce its debt, a nation must:
| A. | run lower deficits. |
| B. | decrease tax rates. |
| C. | run lower surpluses. |
| D. | increase in government spending. |
Debt reduction will result in:
| A. | more public works projects, higher transfer payments, and more money available for households to spend. |
| B. | fewer public works projects, higher transfer payments, and more money available for households to spend. |
| C. | more public works projects, lower transfer payments, and less money available for households to spend. |
| D. | fewer public works projects, lower transfer payments, and less money available for households to spend. |
A friend of yours looks at the state of the U.S. debt in 2011 and tells you, Since the debt is so high, we must be running an incredibly large deficit every year. Your friend's analysis is:
| A. | not valid, because the debt is always changing even when deficits are the same. |
| B. | not valid, because the debt can be high even when the deficit for an individual year is small. |
| C. | valid, because the debt is always changing even when deficits are the same. |
| D. | valid, because the public debt is the sum of all deficits and surpluses run by the government over time and can be high even when the deficit for an individual year is small. |
Assume that the government in some nations intended to respond to low employment via fiscal policy.
a. What type of policy would this require?
| A. | A contractionary fiscal policy designed to decrease the aggregate demand curve. |
| B. | An expansionary fiscal policy designed to decrease the aggregate demand curve. |
| C. | An expansionary fiscal policy designed to increase the aggregate demand curve. |
| D. | A contractionary fiscal policy designed to increase the aggregate demand curve. |
b. Assume that this policy ended up having an undesirable outcome. How could this happen in terms of formulation and implementation lags?
| A. | This could happen if the implementation lag exceeded the formulation lag. |
| B. | This could happen if the formulation lag exceeded the implementation lag. |
| C. | This could happen if the formulation lag and the implementation lag exceeded the expansion. |
| D. | This could happen if the formulation lag and the implementation lag exceeded the recession. |
Ā
Econo Nation started 2008 with no national budget debt or surplus. By the end of 2008, it had a budget surplus of $286 million; in 2009, it had a budget deficit of $-425 million; in 2010, it had a budget surplus of $100 million, and the amount of its budget deficit or surplus in 2011 is unknown. If at the end of 2011 Econo Nation's national debt totalled $52 million, determine the deficit or surplus in 2011.
Instructions: Enter your answer as a whole number and include a negative sign if there is a deficit.
| Period | Deficit (-) or surplus (+) |
| Beginning of 2008 | $0 |
| End of 2008 | $286 million |
| 2009 | $-425 million |
| 2010 | $100 million |
| End of 2011 | _______ million |
