Download Ch 5 MCQs File

Macroeconomics, 11e (Gordon)
Chapter 5 The Government Budget, Foreign Borrowing, and the Twin Deficits
1) The three ways of reducing a government budget deficit are to
A) decrease government spending, reduce consumption, increase the tax rate.
B) increase government spending, decrease real income, reduce the tax rate.
C) decrease government spending, increase real income, reduce the tax rate.
D) decrease government spending, increase real income, increase the tax rate.
6) An increase in the tax rate (t)
A) will rotate the budget line upward.
B) will increase the slope of the budget line.
C) will shift the budget line downward.
D) A and B.
10) Which of the following effects takes place as a result of automatic stabilization?
A) extra tax revenues are generated in a boom
B) tax revenues remain constant during a recession
C) leakages increase during a recession, helping to stimulate the economy
D) Both A and C are correct.
17) The progressive income tax is an automatic stabilizer with respect to the Federal government's budget
surplus or deficit because
A) individuals must "automatically" pay taxes even when they have a deficit.
B) during periods of output growth, a greater percentage of real income "leaks" from the expenditure
stream.
C) during periods of output growth, the marginal leakage rate increases as taxes decrease.
D) None of the above.
19) The relation S + (T - G) = I + NX describing the equilibrium of an economy explicitly demonstrates
A) deficit spending by the government reduces either investment and/or net foreign investment.
B) deficit spending reduces private saving (assuming net foreign investment remains unchanged).
C) as private saving increases net foreign investment must decrease, exports decline.
D) as private saving increases the deficit must decline if investment decreases.
21) Persistent government budget deficit result in ________ taxes and a ________ stock of capital in the future.
A) higher, larger
B) lower, larger
C) higher, smaller
D) lower, smaller
27) A government budget surplus
A) decreases a country's ability to finance domestic and foreign investment.
B) increases a country's ability to finance domestic and foreign investment.
C) increases a country's ability to finance domestic investment and decreases its ability to finance foreign
investment.
D) decreases a country's ability to finance domestic investment and increases its ability to finance foreign
investment.
1
29) A crucial national income accounting identity sets the government budget deficit equal to
A) S - I - NX.
B) S + I - NX.
C) S - I + NX.
D) S + I + NX.
32) Suppose we have an economy for which G = 300, T = 240, S = 80, I = 45, and imports = 40. Exports must be
A) 25.
B) 40.
C) 15.
D) 65.
E) -25.
33) In the late 1980s the U.S. government ran a succession of large budget ________ which resulted mainly in
________ crowding-out.
A) deficits, domestic
B) deficits, international
C) surpluses, domestic
D) surpluses, international
37) A prominent postwar pattern of U.S. government budget deficits was broken in 1983-1990 as
A) recession was accompanied by a shrinking deficit.
B) recession was accompanied by a growing deficit.
C) recovery from recession was accompanied by a shrinking deficit.
D) recovery from recession was accompanied by a growing deficit.
38) Given the average tax rate t, a general expression for the budget deficit is
A) tG - Y.
B) Y - tG.
C) G - tY.
D) Y - (G/t).
39) An example of "automatic stabilizers" is a rise in ________ causing the budget deficit to ________.
A) real GDP, fall
B) real GDP, rise
C) government expenditures, fall
D) government expenditures, rise
E) the average tax rate, fall
40) A recession normally causes ________ in government net tax revenues, ________ the budget deficit is an
example of ________ automatic stabilization.
A) an increase, increasing, the working of
B) an increase, decreasing, a failure of
C) a decrease, decreasing, the working of
D) a decrease, increasing, a failure of
E) a decrease, increasing, the working of
2
47) In a closed economy, an increase in government spending, while taxes remain the same, will be accompanied
by:
A) a decrease in private investment and an increase in privates saving
B) an increase in private investment and a decrease in private savings
C) a decrease in private investment only
D) an increase in private savings only
48) In a closed economy, a decrease in government spending while taxes remain the same will be accompanied
by:
A) a decrease in private investment and an increase in privates saving
B) an increase in private investment and a decrease in private savings
C) a decrease in private investment only
D) an increase in private savings only
49) In a small open economy, an increase in government spending, while taxes remain the same, will be
accompanied by:
A) a decrease in private investment and an increase in privates saving
B) an increase in private investment and a decrease in private savings
C) a decrease in national savings and an increase in foreign borrowing
D) an increase in national savings and a decrease in foreign borrowing
50) In a small open economy, when exports exceed imports, all of the following are true except:
A) net capital outflows are positive
B) net exports are positive
C) domestic investment exceeds domestic saving
D) domestic output exceeds spending
51) In a small open economy, the real interest rate will always be:
A) above the world real interest rate
B) below the world real interest rate
C) equal to the world real interest rate
D) independent of the world real interest rate
60) An increase in tax revenues ________ government saving and ________ national saving.
A) raises, raises
B) raises, lowers
C) lowers, raises
D) lowers, lowers
62) If S = 300, T = 800, G = 1100, and I = 150, this makes net foreign investment
A) 150.
B) -150.
C) 450.
D) 750.
E) -450.
3
63) If S = 200, T = 700, G = 950, and NX = -200, this makes net domestic investment
A) 150.
B) -150.
C) 50.
D) -50.
E) 650.
64) If S = 250, T = 170, NX = -20, this makes government saving
A) -50.
B) -70.
C) 70.
D) 50.
E) -100.
69) If a country's private saving is 100 and government saving is -100, domestic private investment
A) must be 200.
B) must be zero.
C) is equal to the net amount the economy borrows from other countries.
D) is equal to the net amount the economy lends to other countries.
73) The "twin deficits" refer to government expenditures being ________ than net tax revenues at the same time
as exports ________ imports.
A) less, are below
B) less, exceed
C) greater, are below
D) greater, exceed
74) Current account includes all of the following except:
A) net exports
B) net income from abroad
C) net unilateral transfers
D) net regulations
4