According to Intermediate Public Economics by Hindriks and Myles,

https://b-ok.cc/book/3403287/67df91/?wrongHash

1. The snowball effect captures the impacts of

A) global warming on melting snowmen all over the world.

B) rising interest expenditures on accumulated debt.

C) rising interest expenditures on accumulated debt and higher taxes.

D) lower taxes and declining interest expenditures on accumulated debt.

2. Since year 1900, the United States

A) never had a budget surplus.

B) had a budget surplus in only a few years.

C) had sustained budget surpluses in the 1960s and 1970s.

D) had sustained budget surpluses only in the 1960s.

E) had sustained budget surpluses since 2007.

3. Among the following four options, the most useful debt indicator for comparing indebtedness across countries is:

A) expressing debt as nominal debt in U.S. dollar.

B) expressing external debt as a percentage of government revenues.

C) expressing public debt as a percentage of exports.

D) expressing total debt as a percentage of GDP.

4. In the Ricardian model, the accumulation of budget deficits

A) does not imply any burden for the future generation due to intergenerational transfers compensating the future generation.

B) implies a burden for the future generation due to crowing out of current savings which reduce the future capital stock

C) does not imply a burden for the future generation due to the benefits that accrue to the next generation from government investments.

D) implies a burden for the future generation due to the tax increases the next generation will need to shoulder to pay back the debt

E) implies a burden for the future generation due to intergenerational transfers to Martians.

5. The three main elements of a strategy to reduce public debt are:

A) budget surpluses, tax cuts, and inflation.

B) budget surpluses, tax increases, and inflation.

C) budget surpluses, tax cuts and economic growth.

D) budget surpluses, inflation and economic growth.

E) budget surpluses, tax increases and economic growth.

6. It is theoretically possible that there is no burden to the next generation even if the government borrows from

A) foreign creditors.

B) domestic banks.

C) domestic consumers.

D) all of the above, as long as the benefits of the government investment exceed the costs of borrowing for the next generation.

7. Assume the market interest rate is 5 percent. What is the NPV of a $1,000 loan that carries an interest rate of 5 percent and has a maturity of 2 years, with a principal repayment of $400 after the first year and a principal repayment of remaining amount after the second year?

A) $800. B) $823.

C) $900. D) $1,000.

The following information applies to Questions 8 to 10: With regards to the debate if taxing or borrowing is the more appropriate financing of government expenditures, there are four important kinds of considerations: a) the benefits-received principle, b) intergenerational equity considerations, c) efficiency considerations, and d) macroeconomic considerations.

8. The benefits-received principle argues that

A) those receiving the benefits should pay, i.e., if it is current expenditure, then tax; if it is a capital expenditure, then borrow.

B) since future generations are richer, some borrowing is justified.

C) since the DWL of a tax is proportional to the square of the tax rate, it makes sense to borrow as it spreads the costs over a few years, hence, allows a lower tax rate than if the whole expenditure would need to be taxed in one go.

D) if an economy functions below its full employment level, it makes sense to borrow in order to get back to full employment.

9. Intergenerational equity considerations imply that

A) those receiving the benefits should pay, i.e., if it is current expenditure, then tax; if it is a capital expenditure, then borrow.

B) future generations are richer, and hence, some borrowing is justified.

C) since the DWL of a tax is proportional to the square of the tax rate, it makes sense to borrow as it spreads the costs over a few years, hence, allows a lower tax rate than if the whole expenditure would need to be taxed in one go.

D) if an economy functions below its full employment level, it makes sense to borrow in order to get back to full employment.

10. Efficiency considerations imply that

A) those receiving the benefits should pay, i.e., if it is current expenditure, then tax; if it is a capital expenditure, then borrow.

B) future generations are richer, hence, some borrowing is justified.

C) since the DWL of a tax is proportional to the square of the tax rate, it makes sense to borrow as it spreads the costs over a few years, hence, allows a lower tax rate than if the whole expenditure would need to be taxed in one go.

D) if an economy functions below its full employment level, it makes sense to borrow in order to get back to full employment.