Question 1

External debt is that portion of the national debt:

Accepted Answer

External debt refers to the portion of the national debt that is owed to foreign creditors, such as governments, institutions, and individuals. This includes loans, bonds, and other forms of debt issued by the government to foreign entities.

Question 2

The idea that a large national debt is "mortgaging the future of our children and grandchildren" is misleading because:

Accepted Answer

Future generations inherit both the assets and liabilities created by the national debt, meaning they receive the benefits (interest income from bonds, for example) as well as the obligations (the need to pay interest). This makes the statement that national debt mortgages the future misleading, as it does not account for the assets passed along with the debt.

Question 3

According to the crowding-out view, budget deficits will:

Accepted Answer

The crowding-out view suggests that when the government runs a budget deficit, it will increase demand for loans, pushing up interest rates. As interest rates rise, private investment will be discouraged, thus retarding overall economic growth. Therefore, budget deficits will increase interest rates and retard private investment, which is option B.

Question 4

How does the national debt as a percentage of GDP in the United States compared to Sweden?

Accepted Answer

The national debt as a percentage of GDP in the United States is currently around 107%, while in Sweden it is around 41%. Therefore, the U.S. national debt ratio is larger than Sweden's.

Question 5

In recent years, net interest on the national debt paid by the federal government as a percentage of GDP is equal to approximately:

Accepted Answer

In recent years, the net interest on the national debt paid by the federal government has been approximately 1 percent of GDP.

Question 6

Most of the U.S. national debt is owed to ____. Thus a rising national debt implies that there will be a future redistribution of income and wealth in favor of ____.

Accepted Answer

The majority of the U.S. national debt is owed to domestic bondholders, such as individuals, corporations, and foreign governments. Therefore, a rising national debt implies that there will be a future redistribution of income and wealth in favor of these domestic bondholders, who will receive interest payments and eventually the repayment of principal.

Question 7

Which of the following owns the largest proportion of the national debt?

Accepted Answer

The answer of Which of the following owns the largest...

Question 8

Which of the following U.S. Treasury securities represents ownership of the national debt?

Accepted Answer

All of the above choices represent ownership of the national debt as the U.S. Treasury issues bonds to all of these entities in order to finance government spending.

Question 9

"Crowding out" is the theory that an increase in our federal government's budget deficit will likely:

Accepted Answer

Crowding out suggests that increased government borrowing leads to higher interest rates, which can reduce private investment and borrowing, thus impacting the spending multiplier. All options are potential outcomes of increased budget deficits.

Question 10

Which of the following is true if all the national debt were owned internally?

Accepted Answer

Even if the national debt is owned internally, interest payments could still affect income distribution, as they would be paid to certain groups within the country.

Question 11

Since 1990, the net interest payment as a percentage of GDP has:

Accepted Answer

The net interest payment as a percentage of GDP has declined since 1990.

Question 12

Which of the following is a valid concern about federal budget deficits?

Accepted Answer

The answer of Which of the following is a valid...

Question 13

Currently, how much of the U.S. national debt was owed to foreigners?

Accepted Answer

As of the latest data, approximately 30 percent of the U.S. national debt is held by foreign entities.

Question 14

Which of the following countries has the largest national debt as a percentage of GDP?

Accepted Answer

Japan has a national debt of over 200% of its GDP, making it the country with the highest national debt as a percentage of GDP. Greece follows with around 180%, Italy with around 135%, the United States with around 107%, and Canada with around 90%.

Question 15

Which of the following portions of the national debt impose a net interest burden on the federal government?

Accepted Answer

The answer of Which of the following portions of the...

Question 16

If the crowding-out effect is strong, how will the potency of discretionary fiscal policy be affected?

Accepted Answer

The crowding-out effect occurs when increased government spending leads to an increase in interest rates, which reduces private investment and offsets the stimulative effects of fiscal policy. If the crowding-out effect is strong, then fiscal policy will be less potent because the offsetting effect of higher interest rates will be larger.

Question 17

As the size of a nation's outstanding debt gets larger and larger relative to the size of the economy:

Accepted Answer

As the size of a nation's outstanding debt gets larger and larger relative to the size of the economy, all of the options listed in the answer choices become more likely to occur. As the debt-to-GDP ratio rises, global credit markets may become reluctant to lend to the country, which would make it difficult for the country to continue borrowing. Additionally, investors may demand higher real interest rates in order to purchase bonds from the country, which could lead to higher borrowing costs for the government. Finally, if investors lose confidence in the ability of the country to manage its debt burden, the country may be forced to bring spending into line with revenues in order to regain the trust of investors. Therefore, all three options are correct.

Question 18

One concern over external national debt is that interest and principal payments transfer wealth overseas. The percentage of the national debt held in recent years by foreigners is approximately:

Accepted Answer

The answer of One concern over external national debt is...

Question 19

The crowding-out effect refers to:

Accepted Answer

The crowding-out effect occurs when the government borrows a significant amount of money to finance its budget deficit, which leads to an increase in interest rates. Higher interest rates make it more expensive for consumers and businesses to borrow money, reducing private spending and investment. This results in a decrease in economic growth and prosperity for the country.

Question 20

"Crowding in" refers to federal government deficits:

Accepted Answer

"Crowding in" refers to a situation where government deficits stimulate private sector investment and consumption. In this context, option A is the most appropriate as deficits used for public infrastructure can help offset any decline in private sector investment, leading to potential economic growth. Options B and C are not correct as they refer to "crowding out," which describes how government deficits may reduce private business and consumption spending and future rates of economic growth.

Quiz 17: Federal Deficits, Surpluses, and the National Debt