Reference no: EM131093668

1. An important similarity between the Keynesian model and the AD/AS model is that:

• in both models, prices change when there is a change in spending.
• both models allow for government intervention in the short run.
• both models predict that the economy will move towards full employment automatically.
• in both models, the price level stays constant when there is a change in spending.
• in both models real GDP stays constant when there is a change in spending.

2. The best definition of government debt is:

• the difference between government spending and tax revenue in any one year.
• it's always larger than the government deficit.
• the amount the government spends in any one year.
• all the money the government owes at any point in time.
• increasing when the government runs a surplus.

3. The total value of Treasury bonds (T-bonds) in existence at any point in time is:

• the federal government spending deficit.
• the trade deficit.
• less than government spending.
• necessarily less than GDP.
• the national debt.

4. If people's tax rate rises as their income rises, the tax is:

• progressive.
• proportional.
• regressive.
• a flat tax.
• discriminatory.

5. Crowding out refers to the situation in which:

• borrowing by the federal government raises interest rates, causing firms to invest less.
• foreigners sell their bonds and purchase U.S. goods and services.
• borrowing by the federal government causes state and local governments to lower their taxes.
• increased federal taxes to balance the budget cause interest rates to increase, and consumer credit decreases.
• the government purchases from foreign firms rather than domestic firms.

6. A concern about crowding out caused by increased government borrowing is that:

• interest rates on private borrowing fall.
• lower rates of economic growth can result from a decline in business investment spending.
• the federal government may default on its loans.
• foreign lenders find it less attractive to help finance federal deficits.
• the displaced private consumption will create unemployment.