Deck 12: Budget Balance and Government Debt 

Question 1

Other things being equal, a government surplus increases the supply of loanable funds available for investment.

Answer 1

True

Question 2

If business and personal saving are constant, then a federal budget deficit will have no impact on national saving.

Answer 2

False

Question 3

The burden of the debt is borne by those who purchase government bonds.

Answer 3

False

Question 4

A federal budget deficit can strain credit markets, forcing the real rate of interest to decrease.

Question 5

The high employment budget deficit implies that increases in economic activity will not eliminate the actual deficit.

Question 6

From 1950 to 1980, the value of the federal debt as a percent of GDP declined.

Question 7

An increase in market rates of interest tends to decrease the market value of outstanding government debt.

Question 8

State revenue bonds are backed by the taxing power of state governments.

Question 9

If taxpayers anticipate future tax increases when government borrows to finance deficits, increased government borrowing will increase interest rates.

Question 10

The federal government budget recorded surpluses between 1998 and 2001.

Question 11

Other things being equal, an increase in government borrowing is likely to increase interest rates.

Question 12

More than 50 percent of the federal debt in recent years has been outside debt.

Question 13

The net federal debt is projected to soar from about 80 percent of GDP in 2020 to more than 150 percent of GDP by 2050.

Question 14

A federal budget surplus can lead to more credit being available for productive activity.

Question 15

The U.S.deficit in the 1980s was structural in the sense that federal spending would exceed federal revenue even at a level of full employment.

Question 16

From 1950 to 2009, the federal government budget has been in balance in most years.

Question 17

The outstanding federal debt will decline in value if:

A)budget deficits continue.
B)the government runs a budget surplus.
C)the market rate of interest increases.
D)both (b) or (c) are correct.

Question 18

State and local governments are usually required by state law to keep the budgets in balance.

Question 19

Deficit finance postpones taxation from the present to the future.

Question 20

The federal budget has been in deficit:

A)every year between 1970 and 1997.
B)every year between 1950 and 1997.
C)only since 1980.
D)every year between 1960 and 1997.

Question 21

What effects do government borrowing and deficit finance have on the distribution of income and well-being? In your answer discuss the intergenerational effects of deficits and the impact of defi?cits on saving, investment, interest rates, and economic growth.

Question 22

As of 2019, interest payments on the federal debt account for what percent of federal expenses?

A)Around 25 percent
B)Around100 percent
C)Around 10 percent
D)Around 5 percent

Question 23

Other things being equal, a government budget surplus:

A)increases the demand for loanable funds.
B)increases the supply of loanable funds.
C)is likely to increase market equilibrium interest rates.
D)is unlikely to affect market equilibrium interest rates.

Question 24

If the federal government runs a surplus consistently, then which of the following is likely to occur?

A)National saving will decline.
B)The gross federal debt will increase.
C)The gross federal debt will decrease.
D)Market equilibrium interest rates are likely to rise as a result of the surpluses.

Question 25

The National Income and Product Accounts budget balance reflects:

A)an inflation-adjusted budget balance less social security surplus.
B)new debt resulting from a federal budget deficit.
C)the real budget balance.
D)the nominal budget balance.

Question 26

General obligation bonds of state and local governments are:

A)backed by revenue from public facilities such as sports stadiums.
B)backed by the taxing power of state and local governments.
C)usually used to finance capital expenditures.
D)both (b) and (c) are correct.

Question 27

The high employment deficit is estimated at $100 billion.Assuming that the economy is operating below full employment and that it will not overheat during the year,

A)the actual budget is not in deficit.
B)increasing GDP will eliminate the deficit.
C)increasing GDP will not eliminate the deficit.
D)the actual budget is in surplus.

Question 28

Evidence of "crowding out" in the market for loanable funds at a rate of 8 percent could be:

A)private investors who will borrow only at a rate lower than 8 percent.
B)private investors who are willing to accept a rate higher than 8 percent for borrowing.
C)a government surplus.
D)a social security surplus.

Question 29

The largest portion of the net federal debt outstanding is owed to:

A)foreigners.
B)U.S.citizens and companies.
C)federal government agencies.
D)state and local governments.

Question 30

The debt of state and local governments is mostly:

A)internal.
B)external.
C)owed to citizens of other nations.
D)worthless.

Question 31

Which of the following can contribute to a decrease in national saving?

A)A federal budget deficit
B)An increase in the state and local government aggregate surplus
C)A federal budget surplus
D)An increase in personal saving

Question 32

Which of the following is true about the federal government budget balance in the United States?

A)The federal budget has never had a surplus.
B)The federal budget had a surplus every year from 1970 to 2008.
C)The federal budget had a surplus from 1998 until 2001.
D)The federal budget had a deficit from 1998 until 2001.

Question 33

The federal government, its agencies, and the Federal Reserve System:

A)are not permitted to hold outstanding federal debt.
B)hold 50 percent of the outstanding federal debt.
C)hold 27 percent of the outstanding federal debt.
D)hold 75 percent of the outstanding federal debt.

Question 34

What are the advantages and disadvantages of preventing the federal budget from ever being in deficit? In your answer discuss only public finance aspects of the deficit rather than macroeco?nomic issues.Explain why the high employment deficit or surplus might differ from the actual budget deficit or surplus.

Question 35

A bond that is backed by the tolls collected from a bridge to be constructed from the proceeds of the bond is an example of:

A)a general obligation bond.
B)a non-obligation bond.
C)a revenue bond.
D)none of the these are correct.

Question 36

High-employment deficit or surplus is:

A)an extreme economic situation requiring emergency measures.
B)the amount of deficit or surplus available, assuming current employment levels.
C)the amount of deficit or surplus available when employment is at its approximately full capacity.
D)the amount of deficit or surplus available when unemployment is at a relatively high level.

Question 37

Government borrowing will:

A)postpone taxation to the future.
B)increase government interest cost.
C)eliminate taxes.
D)both (a) and (b) are correct.

Question 38

As a result of government borrowing to cover deficits, citizens increase the supply of savings to provide themselves with funds to pay anticipated increases in future taxes.It then follows that increased government borrowing will:

A)reduce private investment.
B)increase private investment.
C)have no effect on private investment.
D)increase interest rates.

Question 39

A government's internal debt is:

A)debt owed to other government agencies.
B)debt owed to other governments.
C)debt owed to its citizens.
D)both (a) and (c) are correct.

Question 40

An increase in government borrowing has no effect on the willingness of citizens to save or on the demand for credit.Increased borrowing to cover deficits will therefore:

A)reduce interest rates.
B)increase interest rates.
C)have no effect on interest rates.
D)not require increased taxes in the future.