If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2, does it follow that the federal government acted to raise taxes or cut government spending in Year 2?
What will be an ideal response?
No, the economy could have been in an expansion in Year 2 with GDP growing faster than anticipated. The faster growth in GDP would raise tax revenues and decrease government spending on transfer payments, decreasing the budget deficit (in this case, moving it to a budget surplus).
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If the Fed wants to lower the nominal interest rate in the long run, the Fed ________ the growth rate of the quantity of money
A) raises B) first lowers and then raises C) lowers D) does not change E) None of the above answers is correct because the premise of the question is wrong since the Fed cannot affect the nominal interest rate, only the real interest rate.
Based on Table 9.3, the capital account balance is equal to
A) +25. B) -25. C) -125. D) +125. E) -225.
An open market sale of U.S. Treasury securities by the Fed will cause the Banking System's balance sheet to show:
A. no net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing. B. only an increase in liabilities. C. no net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing. D. only a decrease in assets.
A firm has to choose between projects X and Y. Project X's internal rate of return is positive. If the cash flow of project Y is discounted at project X's internal rate of return, this firm will
A) choose project X if the net present value of project Y is positive. B) choose project X if the net present value of project Y is negative. C) choose project Y if the net present value of project Y is positive. D) choose project X regardless of the net present value of project Y.