Question 1

Debt has been overstated as a current economic problem because GDP has grown much faster since 1980.

Accepted Answer

Although GDP has grown since 1980, so has debt. In fact, total debt in the US has increased faster than GDP. Therefore, debt remains a significant economic issue.

Question 2

Conservatives claim that government borrowing, even when it may crowd out some private investment, generally has a favorable effect on the productive base of the economy.

Accepted Answer

Conservatives generally believe in limited government intervention in the economy and prioritize reducing government debt and deficits. They argue that excessive government borrowing can lead to higher interest rates, which can crowd out private investment and slow economic growth. They may also argue that government spending often leads to inefficiencies and waste, and that private sector investment is a more effective way to drive long-term economic growth.

Question 3

Prior to the stagflation of the 1970s, Liberals proclaimed that deficit spending produced inflation, rising interest rates, and decreased investment.

Accepted Answer

Prior to the stagflation of the 1970s, it was generally believed, especially among Keynesian economists, that deficit spending could help manage economic downturns without necessarily leading to inflation. The experience of stagflation, which combined high inflation with high unemployment, challenged these views and led to a reevaluation of economic policies.

Question 4

Conservatives favor a balanced budget in all but emergency situations, and they fail to differentiate the sources of deficits.

Accepted Answer

Conservatives generally prioritize a balanced budget, but may make exceptions for emergency situations such as natural disasters or national security. They may not differentiate between deficits caused by decreased revenue or increased spending.

Question 5

Crowding out can only exist--according to Liberals--when the economy is at full employment, and all productive resources are being utilized.

Accepted Answer

Liberals believe that crowding out occurs when government spending leads to higher interest rates and reduced private investment, but this can only happen when the economy is at full employment and all resources are being utilized.

Question 6

Liberals agree that the use of deficit spending can instead be deemed "misuse," as in the case of the Reagan years.

Accepted Answer

Liberals generally believe that deficit spending should be used strategically, but not recklessly or without a plan for paying back the debt. They often criticize past administrations, such as Reagan's, for using deficit spending excessively and without consideration for the long-term consequences.

Question 7

Liberals argue that the implementation of a balanced-budget amendment will neutralize federal fiscal policy, and will leave the economy susceptible to changes in the business cycle.

Accepted Answer

Liberals are against a balanced-budget amendment, as they believe it will limit the government's ability to use fiscal policy to respond to changes in the economy. Without the ability to increase spending during a recession, for example, the economy may suffer further.

Question 8

Liberal economic theory asserts that under balanced-budget conditions, an economic expansion could become inflationary as higher tax revenues would be used to finance greater than expected public expenditures.

Accepted Answer

Liberal economic theory believes that under balanced-budget conditions, economic expansion can become inflationary as higher tax revenues used to finance greater than expected public expenditures. This is because the increase in public expenditure can cause an increase in demand without a corresponding increase in supply, leading to higher prices and inflation.

Question 9

Radicals argue that balancing the federal budget will greatly reduce debt-driven aggregate demand.

Accepted Answer

Radicals would argue that balancing the federal budget may actually harm the economy by reducing government spending and potentially leading to a recession. They may also argue that reducing debt-driven aggregate demand may not necessarily be a desirable outcome if it means decreased consumption and investment in the economy.

Question 10

According to the Radical position, reducing demand by decreasing the federal deficit will not induce businesses to increase investment, modernize production, or decrease costs.

Accepted Answer

According to the Radical position, reducing demand by decreasing the federal deficit will not induce businesses to increase investment, modernize production, or decrease costs.

Question 11

Conservatives claim that the doubling of the Federal debt during Ronald Reagan's administration was largely due to a Liberal congress that failed to cut spending during his tenure.

Accepted Answer

Conservatives argue that although Reagan's policies did contribute to the deficit, the main cause was the unwillingness of a Democratic-controlled Congress to reduce spending on social programs.

Quiz 10: Balancing the Federal Budget: Should We Be Worried About the Rising Federal Deficit

Debt has been overstated as a current economic problem because GDP has grown much faster since 1980.

Conservatives claim that government borrowing, even when it may crowd out some private investment, generally has a favorable effect on the productive base of the economy.

Prior to the stagflation of the 1970s, Liberals proclaimed that deficit spending produced inflation, rising interest rates, and decreased investment.

Conservatives favor a balanced budget in all but emergency situations, and they fail to differentiate the sources of deficits.

Crowding out can only exist--according to Liberals--when the economy is at full employment, and all productive resources are being utilized.

Liberals agree that the use of deficit spending can instead be deemed "misuse," as in the case of the Reagan years.

Liberals argue that the implementation of a balanced-budget amendment will neutralize federal fiscal policy, and will leave the economy susceptible to changes in the business cycle.

Liberal economic theory asserts that under balanced-budget conditions, an economic expansion could become inflationary as higher tax revenues would be used to finance greater than expected public expenditures.

Radicals argue that balancing the federal budget will greatly reduce debt-driven aggregate demand.

According to the Radical position, reducing demand by decreasing the federal deficit will not induce businesses to increase investment, modernize production, or decrease costs.

Conservatives claim that the doubling of the Federal debt during Ronald Reagan's administration was largely due to a Liberal congress that failed to cut spending during his tenure.