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Exam 31: Government Debt and Deficits

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Question 31

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Transfer payments (such as welfare payments and employment-insurance benefits) act as automatic stabilizers because they

A) decrease the swings of the business cycle.
B) increase the swings of the business cycle.
C) increase the swings of the business cycle and make an annually balanced budget much harder to achieve.
D) increase the government surplus during the expansionary phase of the business cycle.
E) increase the debt-to-GDP ratio during the expansionary phase of the business cycle.

F) A) and D)
G) A) and C)

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Question 32

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The Canadian federal government's net debt as a percentage of GDP reached a historic high of

A) 70% in 1996 due to large and persistent deficits throughout the 1970s.
B) 70% in 1982 due to the OPEC oil shock in the mid-1970s and the severe inflation that followed.
C) 110% in 1946 as a result of Canada's participation in the Second World War.
D) 52% in 2012 due to the fiscal expansion following the global financial crisis.
E) 90% in the late 1960s due to massive infrastructure projects in progress across Canada.

F) A) and B)
G) C) and E)

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Question 33

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The policy objective of an annually balanced government budget

The diagram below shows two budget deficit functions for a hypothetical economy. FIGURE 31-2 Refer to Figure 31-2.Initially,suppose real GDP is $100 million and the budget deficit is $14 million,as shown by point A.Which of the following events could result in a move from point A to point C?

The diagram below shows two budget deficit functions for a hypothetical economy. FIGURE 31-2 Refer to Figure 31-2.Initially,suppose real GDP is $100 million and the budget deficit is $14 million,as shown by point A.Which of the following events could result in a move from point A to point B?

The diagram below is for a closed economy which begins in long-run equilibrium at Y* and . FIGURE 31-3 Refer to Figure 31-3.Suppose the government implements an expansionary fiscal policy which increases the budget deficit.The initial effect of this policy is the opening of a(n) ________ gap,and a new short-run equilibrium with a price level of ________ and real GDP of ________.

The diagram below is for a closed economy which begins in long-run equilibrium at Y* and . FIGURE 31-3 Refer to Figure 31-3.Suppose the government implements an expansionary fiscal policy,which increases the budget deficit.The economy's adjustment process returns real GDP to Y* in the long run.Since real GDP is not affected in the long run,how are future generations likely to be harmed by this government policy?

The diagram below shows two budget deficit functions for a hypothetical economy. FIGURE 31-2 Refer to Figure 31-2.Initially,suppose the economy is at point A on budget deficit function .Real GDP (Y) is $100 million.If the government implements a fiscal policy that causes the budget deficit function to shift to ,we can conclude that the policy was ________ and the structural deficit will be ________ than previously.

The table below shows government purchases (G) ,net tax revenues (T) ,and debt-service payments (iD) over a 4-year period for a hypothetical economy.All figures are in billions of dollars.Assume the stock of debt at the end of 2015 is $500 billion. TABLE 31-1 Refer to Table 31-1.What is the primary budget deficit in 2017?

Suppose the real interest rate on government bonds is 5% while the growth rate of real GDP is 4%,and that the government's current debt-to-GDP ratio is 30%.If the government has a primary budget balance of zero in the current year,the debt-to-GDP ratio will

Consider the budget deficit function.With an unchanged fiscal policy by government,an increase in national income causes ________ the budget deficit function.

The table below shows government purchases (G) ,net tax revenues (T) ,and debt-service payments (iD) over a 4-year period for a hypothetical economy.All figures are in billions of dollars.Assume the stock of debt at the end of 2015 is $500 billion. TABLE 31-1 Refer to Table 31-1.What is the overall budget deficit in 2015?

The data below provides the Actual and Structural Budget Deficits,as a percentage of real GDP,for Canada between 1999 and 2010.Note that a negative value in the table indicates a budget surplus. TABLE 31-2 Refer to Table 31-2.Consider the year 2004.Based on the data in the table we can conclude that

The diagram below shows the budget deficit function for a government in a hypothetical economy. FIGURE 31-1 Refer to Figure 31-1.Initially,suppose real GDP is $100 million and the budget deficit is $4 million,as shown by point A.If the government implements an expansionary fiscal policy by increasing its purchases of goods and services,then

In an open economy with internationally mobile financial capital,we would expect a policy-induced increase in the government's budget deficit to crowd out

Suppose the stock of government debt in Canada at the end of fiscal Year 1 is $475 billion.If the stock of debt rises to $482 billion by the end of fiscal Year 2,then we know that during Year 2

The government's structural budget deficit adjusts for

Consider a government with a positive stock of debt,and suppose the real interest rate on government bonds equals the rate of growth of real GDP.In this case,the government's debt-to-GDP ratio will rise only if

It can be argued that a government budget deficit,rather than being a burden for future generations,may provide net benefits to future generations.This view is correct if the current budget deficit is used to

The budget deficit function is graphed with the budget deficit on the vertical axis and ________ on the horizontal axis,and is ________.