Debt vs. Deficit Quiz & Article Quiz

revenue > expenditures in a year

• Surplus

• Deficit

• Debt

• Shortage

According to the article, we do not have to worry about our debt as long as it is . . . ?

• paid off by the time we die

• passed on to future generations to deal with

• not as high as the % of our GDP

• not higher than the interest on the debt

Organize fiscal & monetary policies.

Groups:

(a) Expansionary Fiscal

,

(b) Contractionary Fiscal

,

(c) Expansionary Monetary

,

(d) Contractionary Monetary

• decrease govt. spending

• lower IOR

• raise fed funds rate

• buy bonds

• lower discount rate

• lower fed funds rate

• decrease transfer payements

• decrease personal income taxes

• raise discount rate

• lower reserve rate

• sell bonds

• increase govt. spending

• raise reserve rate

• increase personal income taxe

• increase transfer payements

• raise IOR

Match the differences here

Groups:

(a) problems with timing fiscal policy

,

(b) problems with Fiscal Policy

• operational lag

• recognition lag

• Crowding out effect

• administrative lag

• net export effect

• political motivation

In the long-run what is the best solution to dealing with our debt?

• decreasing taxes and increasing govt. spending
• issuing new bonds and running a surplus
• increasing taxes and decreasing govt. spending
• there is no solution to paying off the debt

What is a cyclically adjusted budget balance?

• estimated budget balance if there was no recessionary or inflationary gap
• estimated unemployment rate if there was no recessionary or inflationary gap
• estimated inflation rate if there was no recessionary or inflationary gap

What should responsible, stable govts. do to deal with deficits?

• raise taxes
• lower taxes
• continue to run deficits each year
• sell bonds

In order to maintain the debt, ____________ must be levied to pay the ________________ on the debt.

• taxes, inflation
• taxes, interest
• taxes, surplus
• transfer payments, real interest rate

Which of the following is a reason to be concerned about persistent budget deficits?

• a. crowding out
• b. government default
• c. the opportunity cost of future interest payments
• d. higher interest rates leading to decreased long-run growth
• e. all of the above