Question

18a.

Which of the following options is correct?

If depreciation exceeds investment, the country becomes poorer.

If investment in infrastructure exceeds depreciation, the country is that much richer at the end of the year.

Neither

Both

b.

Compared to the U.S. economy, the Chinese economy has which of the following features?

A larger share of consumption in GDP

A higher rate of personal saving

A larger net financial inflow from abroad

A larger government budget deficit

c.

Which of the following is a possible source of the funds that a country needs for investment in new capital and replacement of old capital?

Household saving

All of the statements are true.

The government budget deficit

An external imbalance in the form of more exports than imports

d.

Which of the following is an example of fiscal consolidation?

The government is running a budget deficit and chooses to decrease taxes to stimulate the economy.

The government is running a budget deficit and chooses to issue new bonds to cover the shortfall in funding.

The authorities choose to reduce government spending and increase taxes by enough to make the deficit sustainable

The government is running a budget deficit and chooses to increase taxes and increase government spending by the same amount.

e.

Which of the following must be true in the long run for the government budget deficit and debt to be sustainable?

Interest payments on the debt must exceed the rate of creation of new money.

The real value of government debt must grow no faster than real GDP.

The total budget, including interest payments, must balance on average over the business cycle.

Expenditures must be equal to taxes each fiscal year.

Answer 1

Answer a

if depreciation exceeds investment country becomes poorer

Answer b

A larger net financial inflow from abroad

Answer c

An external imbalance in the form of more exports than imports

Answer d

The authorities choose to reduce government spending and increase taxes by enough to make the deficit sustainable

Answer e

Interest payments on the debt must exceed the rate of creation of new money