ECO 201 Chapter 18 Test Questions and Answers Fully Solved Graded A+
If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing
at a level that is substantially less than potential GDP, then: - Answers the central bank might react with
an expansionary monetary policy.
A moderate increase in a budget deficit that leads to a _____________________ is not necessarily a
cause for concern. - Answers moderate increase in a trade deficit and a moderate appreciation of the
exchange rate
When government policy moves from a budget deficit to a budget surplus and the trade deficit remains
constant: - Answers investment will increase if savings remain constant.
In a market-oriented economy, private firms will undertake most of the _______________, and
________________ should seek to avoid a long series of large budget deficits that might crowd out such
investment. - Answers investment in physical capital; fiscal policy
When a government records a trade surplus, the national savings and investment identity is written as: -
Answers S = I + (G - T) + (X - M)
If the government's budget deficit increases while the economy is producing substantially less then
potential GDP and expansionary monetary policy is implemented, then any ________________ from
government borrowing would be _______________ from that monetary policy. - Answers higher
interest rates; largely offset by the lower interest rates
When a government records a budget surplus, the national savings and investment identity is written as:
- Answers S + (M - X) + (T - G) = I
If David Ricardo's theory holds completely true, then any change in budget deficits or budget surpluses
would be completely offset by which of the following? - Answers a corresponding change in private
saving
A government began 2013 with a budget deficit and a trade deficit. During the year, the government
changed its policy and is now running a budget surplus. If all other factors hold constant, this change in
policy will cause: - Answers the exchange rate and the trade deficit to decrease.
Ricardian equivalence means that: - Answers changes in private savings offset any changes in the
government deficit.
If the government initiates an expansionary monetary policy at the same time that its budget deficit
decreases, then the interest rate will ______________________. - Answers decrease
If an economy has a budget surplus of 1,500, private savings of 3,000, and investment of 5,000, what will
the balance of trade in this economy equal? - Answers surplus of 500
A reduction in government borrowing can: - Answers give private investment an opportunity to expand.
If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing
at a level that is substantially less than potential GDP, then: - Answers the central bank might react with
an expansionary monetary policy.
A moderate increase in a budget deficit that leads to a _____________________ is not necessarily a
cause for concern. - Answers moderate increase in a trade deficit and a moderate appreciation of the
exchange rate
When government policy moves from a budget deficit to a budget surplus and the trade deficit remains
constant: - Answers investment will increase if savings remain constant.
In a market-oriented economy, private firms will undertake most of the _______________, and
________________ should seek to avoid a long series of large budget deficits that might crowd out such
investment. - Answers investment in physical capital; fiscal policy
When a government records a trade surplus, the national savings and investment identity is written as: -
Answers S = I + (G - T) + (X - M)
If the government's budget deficit increases while the economy is producing substantially less then
potential GDP and expansionary monetary policy is implemented, then any ________________ from
government borrowing would be _______________ from that monetary policy. - Answers higher
interest rates; largely offset by the lower interest rates
When a government records a budget surplus, the national savings and investment identity is written as:
- Answers S + (M - X) + (T - G) = I
If David Ricardo's theory holds completely true, then any change in budget deficits or budget surpluses
would be completely offset by which of the following? - Answers a corresponding change in private
saving
A government began 2013 with a budget deficit and a trade deficit. During the year, the government
changed its policy and is now running a budget surplus. If all other factors hold constant, this change in
policy will cause: - Answers the exchange rate and the trade deficit to decrease.
Ricardian equivalence means that: - Answers changes in private savings offset any changes in the
government deficit.
If the government initiates an expansionary monetary policy at the same time that its budget deficit
decreases, then the interest rate will ______________________. - Answers decrease
If an economy has a budget surplus of 1,500, private savings of 3,000, and investment of 5,000, what will
the balance of trade in this economy equal? - Answers surplus of 500
A reduction in government borrowing can: - Answers give private investment an opportunity to expand.
