Deficit & Debt

Which of the following is NOT a primary tool for the government's discretionary fiscal policy?

• government spending

• open market operations

• taxation changes

The government utilizes a contractionary fiscal policy to

• grow the economy

• deal with inflationary pressures

• increase employment

To implement an expansionary fiscal policy the government will

• increase taxes and decrease spending

• increase taxes and increase spending

• decrease taxes and decrease spending

• decrease taxes and increase spending

Expansionary fiscal policies lead to ___________________ spending.

• deficit

• debt

• bad

• decreased

The government borrows money to cover any deficits it runs by

• increasing taxes

• borrowing money from banks

• borrowing money from the federal government

• issuing bonds

A deficit is

• when the government spends more than it collects in taxes and borrows to cover the difference.

• the sum of all of the money owed by the government.

• a very, very, very bad thing to have in government

• okay to have.

The government can use a _________________ to reduce its debt.

• shortage

• surplus

• deficit

• loan

The effect of government borrowing can be modeled using the loanable funds market. A government budget deficit results in a(n) ____________________________ for loanable funds.

• decrease demand

• increase demand

• decrease supply

• increase supply

The effect of government borrowing can be modeled using the loanable funds market. A government budget surplus results in a(n) ____________________________ for loanable funds.

• decrease demand

• increase demand

• decrease supply

• increase supply

What happens to interest rates when the government enacts an expansionary fiscal policy?

• real interest rates rise

• real interest rates fall

• nominal interest rates fall

• nominal interest rates are unaffected