Question Details

n increase in the national debt is more likely to be a burden on future generations 



1. "Of course, if the government uses borrowed funds to invest in assets - hospitals, schools, roads, dams - which themselves have large future returns, then any costs of crowding out will be alleviated." The main cost of crowding out is that 
a) inflation increases b) consumption decreases 
c) unemployment increases d) a smaller capital stock is created 
2. "Both research groups said last week that the deficit has bottomed out and will begin to rise next year. They predicted economic growth would slow this year to 2.5 percent in real terms, from a robust 3.7 percent last year." Which of the following statements is reasonable in this context? 
a) growth has nothing to do with the deficit 
b) the fall in the deficit caused the high growth 
c) the predicted fall in growth is the reason the deficit is predicted to rise 
d) the predicted rise in the deficit is the reason growth is predicted to fall 
3. "However, there are some important differences in the relative situations in the two countries that suggest that the urgency of reducing the federal deficit right now is greater in the U.S. than in Canada." This conclusion most likely follows from the fact that 
a) unemployment in Canada is lower than in the U.S. 
b) inflation in Canada is higher than inflation in the U.S. 
c) Canada's deficit as a fraction of GDP is higher than that of the U.S. 
d) Canada currently is much further below its potential output than is the U.S. 
4. If "the" multiplier is 3, the marginal tax rate is 20% and the money multiplier is 4, a $10b increase in government spending will cause the government budget deficit to 
a) increase by $10b b) increase by $6b c) increase by $4b d) decrease by $6b 
5. An increase in the national debt is more likely to be a burden on future generations if it is incurred to finance 
a) the Olympic games when the economy is fully employed 26 
b) the Olympic games when the economy is in a recession 
c) a railroad spur line to a coal-rich area when the economy is in recession 
d) a railroad spur line to a coal-rich area when the economy is fully employed



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