Government Budget Deficits and Policies

What does the budget balance represent?

• The total amount of money a government owes.

• The difference between tax revenue and government spending and transfers.

• The annual increase in the national debt.

• The total government spending in a fiscal year.

A government experiences a budget deficit when:

• Tax revenue is greater than government spending and transfers.

• Tax revenue is exactly equal to government spending and transfers.

• Tax revenue is less than government spending and transfers.

• The national debt is completely eliminated.

How does expansionary fiscal policy typically affect the economy's budget?

• It moves the economy towards a budget surplus.

• It moves the economy towards a balanced budget.

• It moves the economy towards a budget deficit.

• It has no direct impact on the budget balance.

What is the key distinction between a budget deficit and the national debt?

• A budget deficit refers to the total accumulated debt, while national debt is an annual occurrence.

• A budget deficit is an annual occurrence, while national debt is the total accumulated debt.

• Both terms refer to the same concept and are interchangeable.

• A budget deficit is only caused by tax cuts, while national debt is caused by increased spending.

Contractionary fiscal policy aims to achieve which of the following?

• Increase government spending and transfers.

• Move the economy towards a budget deficit.

• Move the economy towards a budget surplus or smaller deficit.

• Reduce tax revenue to stimulate the economy.

What is a direct consequence of governments paying interest on their national debt?

• It leads to a decrease in future tax rates.

• It frees up funds for alternative government spending.

• It adds to the national debt and limits other spending.

• It primarily benefits foreign investors.

What are "implicit liabilities" in the context of government finance?

• Officially recognized debts that are publicly traded.

• Promises of future payments, like Social Security and Medicare, not officially counted as debt.

• Short-term loans taken by the government to cover immediate expenses.

• Funds allocated for emergency relief and disaster recovery.

How does a government typically finance a budget deficit?

• By increasing the money supply through printing more currency.

• By selling treasury bonds to borrow money.

• By reducing interest rates on existing debt.

• By increasing tariffs on imported goods.

In the loanable funds market, what is the immediate effect of a government budget deficit?

• It shifts the demand curve for loanable funds to the right.

• It shifts the supply curve of loanable funds to the left, increasing real interest rates.

• It decreases the overall quantity of loanable funds available.

• It leads to a decrease in private savings.

What is a significant long-run impact of crowding out on an economy?

• It leads to a higher rate of capital accumulation and faster economic growth.

• It increases the effectiveness of expansionary fiscal policy.

• It results in a lower rate of capital accumulation and slower economic growth.

• It primarily affects the short-term aggregate demand.