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Commerce and BusinessbackBusinessbackPrinciples of EconomicsbackEconomicsbackPractice Set 2495back

Government Debt And Deficits

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Question 1
Free
Multiple Choice

What is the difference between the government's debt and the government's deficit?

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A

The debt is the annual shortfall of revenues minus disbursements whereas the deficit is the accumulation of past debts.

B

The debt is the amount the government pays in interest payments whereas the deficit has not yet incurred interest charges.

C

The debt is the amount payable to the Bank of Canada whereas the deficit is the annual shortfall of revenue minus disbursements.

D

The debt is the accumulation of past deficits whereas the deficit is the annual shortfall between revenues and disbursements.

E

The debt is the difference between tax revenues and government expenditures whereas the deficit is the difference between tax revenues and borrowing.

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Question 2
Free
Multiple Choice

A simple equation describing the government's budget constraint is

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A

government expenditure = tax revenue - borrowing.

B

government expenditure = tax revenue + borrowing.

C

government expenditure = tax revenue + debt-service payments.

D

tax revenue = government expenditure + borrowing.

E

tax revenue = borrowing - government expenditure.

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Question 3
Free
Multiple Choice

Consider the following variables: G = government purchases
I = interest rate on government debt
D = stock of government debt
T = net tax revenue
The government's budget constraint can be expressed as

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A

(G + iD)= borrowing - T.

B

(G + iD)- T = borrowing.

C

(G + iD)+ T = borrowing.

D

G - T - (iD)= borrowing.

E

(G - iD)= borrowing + T.

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Question 4
Free
Multiple Choice

Consider the following variables: G = government purchases
I = interest rate on government debt
D = stock of government debt
T = net tax revenue
The government's budget deficit can be expressed as

Choose correct answer/s
A

ΔD = (G + iD)- T.

B

ΔD = (G - iD)+ T.

C

deficit = D - (G + iD)+ T.

D

deficit = D - T + (G + iD).

E

T = ΔD - (G + iD).

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Question 5
Free
Multiple Choice

In any given year,the government's debt-service payments are

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A

equal to the annual budget deficit.

B

equal to the annual primary budget deficit.

C

the interest payments on the outstanding stock of government debt.

D

not related to the government deficit.

E

not required unless the debt is held by foreigners.

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Question 6
Multiple Choice

In any given year,the government's debt-service payments are equal to

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A
(fiscal borrowing)× (the interest rate).
B
(government spending)× (the interest rate).
C
(government spending - tax revenue)× (the interest rate).
D
(total outstanding government debt)× (the interest rate).
E
(government spending + tax revenue)× (the interest rate).
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Question 7
Multiple Choice

Consider the government's budget constraint.The accumulated stock of government debt will begin to fall

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A
if the government's debt-service payments are zero.
B
if the government does not borrow money.
C
if the growth rate of real GDP is higher than the real interest rate.
D
when the government's annual budget is in deficit.
E
when the government's annual budget is in surplus.
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Question 8
Multiple Choice

The federal government's "primary budget deficit"

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A
includes domestic borrowing but excludes foreign borrowing.
B
excludes debt-service payments.
C
is the amount of government borrowing in a fiscal year.
D
is the amount of tax revenue minus the amount of interest paid on the public debt.
E
is the most important indicator of the level of government spending.
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Question 9
Multiple Choice

The government's annual primary budget deficit is equal to the

Choose correct answer/s
A
accumulation of government borrowing.
B
decrease in the stock of government debt during the course of a year.
C
excess of government's program expenditures over tax revenues in a given fiscal year.
D
total amount of government spending on program expenses,personnel,and capital outlays.
E
excess of current revenue over current expenditure.
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Question 10
Multiple Choice

Do we get a useful and meaningful statistic by dividing the national debt by the GDP?

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A
No - we are essentially "dividing apples by oranges," which is unhelpful.
B
No - the GDP is not a meaningful measure of the well-being of the economy.
C
Yes - we can then see how much of the national debt is owed by each individual citizen.
D
Yes - we can see the burden of the debt in relation to the size of the economy.
E
No - dividing a stock by a flow can never be sensible.
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Question 11
Multiple Choice

The government's primary budget deficit (or surplus)is the

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A
non-interest expenditures and interest payments.
B
sum of total government expenditures and revenues.
C
sum of interest payments and revenues.
D
total budget deficit between two fiscal years.
E
total budget deficit (or surplus)excluding debt-service payments.
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Question 12
Multiple Choice

The government's primary budget deficit (or surplus)is the difference between the

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A
non-interest expenditures and interest payments.
B
interest payments and revenues.
C
total budget deficit (or surplus)and debt-service payments.
D
total budget deficit (or surplus)between one year and the next.
E
total government expenditures and revenues.
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Question 13
Multiple Choice

Consider the federal government's budget constraint.If the government's total budget deficit is $27 billion and its debt-service payments are $29 billion,then its

Choose correct answer/s
A
primary budget deficit is $2 billion.
B
primary budget deficit is $56 billion.
C
primary budget surplus is $2 billion.
D
primary budget surplus is $56 billion.
E
Not enough information to determine.
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Question 14
Multiple Choice

Suppose that in Year 2 there was a higher federal budget deficit than in Year 1.This could be explained by ________ in Year 2.

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A
lower real interest rates
B
higher real GDP (with fiscal policy constant)
C
lower real GDP (with fiscal policy constant)
D
lower government expenditure (with real GDP constant)
E
a lower primary budget surplus
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Question 15
Multiple Choice

The extent to which tax revenues are able to finance the discretionary part of total government expenditure is best measured by the

Choose correct answer/s
A
cyclically adjusted deficit/surplus.
B
government's current fiscal policy.
C
debt-to-GDP ratio.
D
government's primary budget deficit or surplus.
E
tax-to-GDP ratio.
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Question 16
Multiple Choice

When a government changes its fiscal policy,it is

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A
changing the exchange rates to change national income.
B
increasing the money supply to increase national income.
C
changing government spending and/or tax rates to achieve some objective.
D
using government spending and taxes together with changing the money supply in order to achieve full employment.
E
buying and selling private bonds to increase or decrease the overnight lending rate.
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Question 17
Multiple Choice

If we want to know whether tax revenues are sufficient to finance the discretionary part of government expenditure,which of the following measures should we analyze?

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A
the cyclically adjusted deficit/surplus
B
the government's budget constraint
C
the debt-to-GDP ratio
D
the government's primary deficit/surplus
E
the interest rate on government bonds compared to the growth rate of real GDP
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Question 18
Multiple Choice

If voters want to know how their tax dollars are being spent and how the federal government is managing its current spending,they should look at

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A
federal/provincial tax transfers.
B
changes in the money supply.
C
the primary budget balance.
D
the overall budget balance.
E
the inflation adjusted deficit.
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Question 19
Multiple Choice

Suppose the stock of government debt in Canada at the end of one fiscal year is $475 billion.If the stock of debt falls to $461 billion by the end of the next fiscal year,then we know that in that year

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A
the government had a primary budget surplus of $14 billion.
B
the government had a primary budget deficit of $14 billion.
C
tax revenues increased by $14 billion.
D
the government had an annual budget surplus of $14 billion.
E
debt-service payments fell by $14 billion.
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Question 20
Multiple Choice

Suppose the stock of government debt in Canada at the end of one fiscal year is $475 billion.If the stock of debt falls to $461 billion by the end of the next fiscal year,and debt-service payments during that year were $38 billion,then we know that the government had

Choose correct answer/s
A
a primary budget surplus of $52 billion.
B
a primary budget surplus of $14 billion.
C
a primary budget surplus of $24 billion.
D
an annual budget surplus of $38 billion.
E
an annual budget deficit of $14 billion.
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