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Multiple Choice Quiz
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1
When the growth rate of real output is greater than the real interest rate and the primary budget is balanced, then
A)the debt-to-GDP ratio should fall
B)the debt- to-GDP ratio should rise
C)the government is able to retire some of the national debt
D)the total budget deficit cannot increase
2
The percent change in the debt-to-GDP ratio can be written as
A)% change GDP - % change debt
B)% change debt - % change GDP
C)% change GDP * % change debt
D)% change debt / % change GDP
3
The debt in year t+1, debtt+1, is defined as
A)primary deficitt + debtt
B)primary deficitt + i * debtt
C)primary deficitt + debtt * (1 + i)
D)none of the above
4
The primary deficit is defined as
A)government outlays, except interest payments, minus all government revenue
B)tax revenue minus government spending
C)tax revenue minus interest payments and government spending
D)none of the above
5
Who owns the national debt?
A)the U.S. government
B)international investors
C)U.S. citizens
D)all of the above
6
Interest payments on this kind of debt do not contribute to U.S. GDP
A)debt held by the public
B)debt held by foreign governments
C)debt held by state governments
D)sovereign debt
7
The common currency in the Eurozone makes it impossible for countries to
A)modify exchange rates
B)issue sovereign debt
C)lower unemployment
D)attract tourists
8
Which of the following is true of sovereign debt?
A)it has no interest payments
B)it requires a fixed interest rate
C)it is issued solely by governments
D)it is owned solely by governments
9
Why do developing countries have a lower debt-to-GDP ratio threshold for entering a debt crisis?
A)there is less confidence that they will be able to pay back their debts
B)they have fewer military forces
C)they require higher interest rate payments
D)they have more debt held by the public
10
If the government achieves a balanced budget while GDP grows at a rate of 3% per year, then
A)the national debt will shrink
B)the debt-to-GDP ratio will shrink
C)the national debt will grow
D)the debt-to-GDP ratio will grow





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