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Budget Surplus and Budget Deficit quiz #1

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Termini in questo insieme (10)

  • What are two ways the debt-to-GDP ratio can increase in an economy?
    The debt-to-GDP ratio can increase if government debt grows faster than GDP, which can happen if the government runs persistent budget deficits (spending and transfers exceed tax revenues), or if GDP growth slows or declines (such as during a recession), causing the denominator to grow more slowly or shrink while debt continues to accumulate.
  • What are government transfers and how do they differ from government purchases?
    Government transfers are payments like welfare or unemployment benefits where the government receives nothing in return, while government purchases involve buying goods or services such as building highways. Transfers do not result in the government acquiring goods or services, but purchases do.
  • How does the government typically respond to a recession in terms of spending?
    During a recession, the government usually increases its spending to stimulate the economy. This increased spending often leads to a larger budget deficit.
  • What is the main purpose of the cyclically adjusted budget deficit or surplus?
    The cyclically adjusted budget deficit or surplus aims to remove the effects of the business cycle from the government's fiscal balance. This provides a clearer picture of the underlying fiscal position by assuming the economy is at its potential GDP.
  • How do automatic stabilizers affect government tax revenues during expansions and recessions?
    Automatic stabilizers cause tax revenues to decrease during recessions as incomes fall and to increase during expansions as incomes rise. These changes happen without any new fiscal policy decisions.
  • What does it mean if the government's inflows from taxes are less than its outflows from purchases and transfers?
    If tax inflows are less than outflows, the government is running a budget deficit. This means it is spending more money than it is collecting in taxes.
  • Why does the actual budget deficit graph appear more volatile than the cyclically adjusted budget deficit graph?
    The actual budget deficit graph is more volatile because it includes temporary changes in spending and taxes due to the business cycle. The cyclically adjusted measure smooths out these fluctuations for a more stable view.
  • What historical trend has the U.S. government budget shown since the 1960s?
    Since the 1960s, the U.S. government has mostly run budget deficits, with only a brief period of surplus in the 1990s. This trend is visible in graphs showing the budget balance as a percentage of GDP.
  • What happens to government savings when there is a budget surplus?
    When there is a budget surplus, government savings increase because tax revenues exceed spending and transfers. This means the government has money left over at the end of the period.
  • How does the business cycle influence the size of the budget deficit?
    The size of the budget deficit tends to increase during recessions due to higher government spending and decrease during expansions when less stimulus is needed. This relationship is a key reason for using cyclically adjusted measures.