Oxford University Press | Online Resource Centre

Choose your answer by clicking the radio button next to your choice and then press 'Submit' to get your score.

Question 1

Unemployment benefits and income taxation are examples of…

a) …uses and sources of seigniorage.

b) …automatic stabilizers.

c) …procyclical fiscal policy instruments.

d) …debt stabilization.

Question 2

A´ and B´ are the actual observed combinations of output gap and government budget surplus for the two different fiscal policies FP and FP´ . The change in fiscal policy...

a) ...was expansionary as can be seen from the increase in the cyclically adjusted government budget deficit.

b) ... was contractionary as can be seen from the increase in the government budget surplus.

c) ... from FP to FP´ caused the economy to expand from the lower output gap at A´ to the higher output gap at B´ .

d) ...matters only for the composition of GDP between private and public uses and not for the level of GDP.

Question 3

B is the level of public debt
M0 is the monetary base
P is the price level
G is government spending on goods and services
T is government taxes net of transfers
r is the interest rate
For the government budget/debt equation, decide whether subtraction or addition signs are appropriate in the spaces indicated.

a) (i) "-" ; (ii) "-"

b) (i) "-" ; (ii) "+"

c) (i) "+" ; (ii) "-"

d) (i) "+" ; (ii) "+"

Question 4

Suppose your country's public debt to GDP ratio were exploding and you wished to stabilize it. One of your advisers tells you that by monetizing the debt, you will save the interest payment on the debt since you will pay zero percent on the monetary base you create. The reason you fire your adviser is...

a) GDP in the denominator of the ratio will fall too.

b) He clearly confused seigniorage with the inflation tax which is why his recommended policy would fail.

c) This might help to stabilize the debt/GDP ratio but it definitely will give you inflation that is exploding.

d) This is equivalent to defaulting on the sovereign debt which only postpones the debt to a later period.

Question 5

If a government defaults on the value of its debt by 3/4, this is the same as imposing a ____ tax on interest and repayment of the principal

a) 25% = (1-3/4) times 100

b) 57% = 100 / (1+ 3/4)

c) 75% = (3/4) times 100

d) 133% = (4/3) times 100

Question 6

By _____________ economists refer to an unanticipated inflation that reduces the real value of outstanding government debt

a) seigniorage

b) the inflation tax

c) cost of inflation

d) unanticipated default

Question 7

The difference between the actual government budget deficit and its debt service payments is defined as the…

a) …primary budget deficit

b) …cyclically-adjusted budget deficit

c) …exogenous budget deficit

d) …smoothed budget deficit

Oxford University Press, Online Resource Centre, Chapter 17.

Chapter 17