Question

1.

According to the traditional view of government debt, if taxes are cut without cutting government spending, then the long-run effects will be ______ capital and ______ consumption.
higher; lower
lower; lower
lower; higher
higher; higher

2.

f the preferred bank stock acquired by the U.S. government through the TARP program is valued using a capital budgeting approach, then the government budget deficit in the year in which the stock is acquired will be _____ than if a current budget approach were employed.

smaller
more cyclical
no different
larger

3.

Prior to the financial crisis of 2008–2009 in the United States, financial regulation in that country consisted of a _____ system of regulators, which the Dodd-Frank Act sought to improve upon by _____ the number of regulatory bodies.

	fragmented; increasing
	coordinated; decreasing
	fragmented; decreasing
	coordinated; increasing

4.

According to the traditional view of government debt, if taxes are cut without a cut in government spending, then in Canada this situation will lead to ______ net indebtedness on the part of Canada to foreign countries and ______ net exports.
  
more; fewer
more; more
less; fewer
fewer; more

Answer 1

1) According to the traditional view of government debt, if taxes are cut without cutting government spending, then the long-run effects will be a lower steady state capital and lower consumption. A tax cut without a cut in government spending stimulates consumer spending in the short run and reduces national saving. The answer is option (b).