IB ECON 21-22

What is a budget deficit?

• When government revenue exceeds spending
• When government spending exceeds revenue
• When a country has no debt
• When GDP exceeds government debt

Government debt is best described as:

• The annual difference between G and T
• The sum of all accumulated budget deficits
• Only foreign borrowing
• The total tax revenue collected

A sustainable level of government debt is important because:

• It allows unlimited borrowing
• No government can continually spend more than it earns
• It eliminates the need for taxation
• It ensures zero inflation

How is government debt primarily measured?

• Absolute dollar value
• As a percentage of GDP
• By annual tax revenue
• By inflation rate

A high debt-to-GDP ratio indicates:

• A highly sustainable debt level
• A less affordable debt
• No risk of inflation
• A budget surplus

What happens when a government runs a budget surplus?

• National debt increases
• National debt decreases
• GDP automatically rises
• Inflation increases

Which of the following is a cost of high government debt?

• Lower interest rates
• Higher credit ratings
• Debt servicing costs
• Increased foreign aid

What does "debt servicing" refer to?

• Government spending on welfare
• Repaying loans and interest
• Printing more money
• Reducing taxes

A poor credit rating for a country means:

• It can borrow at lower interest rates
• It is less attractive to lenders
• It will always run surpluses
• GDP will increase

Austerity measures typically involve:

• Increased spending and lower taxes
• Reduced spending and higher taxes
• Printing more money
• Eliminating all debt immediately