Recent proposals to allow the Social Security trust fund to invest in the stock market (instead of buying government bonds) are based on the premise that
A) the returns to stocks are higher than the returns to bonds.
B) the returns to stocks aren't as risky as the returns to bonds.
C) the transactions costs for investing in stocks are lower than the transactions costs for investing in bonds.
D) stocks are more liquid than bonds.
12) A decreased government deficit created by a lump-sum tax increase will increase national saving if
A) the value of government bonds outstanding grows slower than the public's wealth.
B) it causes consumption to fall.
C) the government runs a primary surplus as a result.
D) the real interest rate is less than the growth rate of real GNP.
13) According to the Ricardian equivalence proposition, current deficits
A) will not affect consumption or national saving.
B) will affect consumption but not national saving.
C) will affect national saving but not consumption.
D) will affect both consumption and national saving.
14) According to the Ricardian equivalence proposition, a government budget deficit created by a temporary tax cut
A) does not affect desired national saving.
B) does not affect expected future taxes.
C) reduces desired investment spending.
D) increases the real interest rate.
15) Deficits are a burden on future generations if they
A) cause higher rates of inflation to occur.
B) are not used for government capital formation.
C) cause national saving to fall.
D) are always a primary government deficit.
16) The stimulus package of 2009 had the effect of
A) causing higher rates of inflation to occur.
B) giving new foreign aid to help less developed countries.
C) significantly raising the debt to GDP ratio.
D) reducing the primary government deficit.
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