Question 1

In the 1980s and early 1990s the annual federal budget deficit was ________ percent of GDP.

Accepted Answer

During the 1980s and early 1990s, the annual federal budget deficit in the United States often ranged from 3 to 6 percent of the Gross Domestic Product (GDP), reflecting significant fiscal imbalances during that period.

Question 2

A government budget deficit has the greatest inflationary impact if it is financed by

Accepted Answer

When a government budget deficit is financed by creating new money, it increases the overall money supply in the economy, which can lead to inflation. This happens because there is more money chasing the same amount of goods, which drives up prices. The other options listed either do not increase the money supply or may actually decrease it, making them less inflationary.

Question 3

If people believe that in the future the government will have to resort to creating money to pay the interest on debt currently financed by the sale of bonds,they may

Accepted Answer

If people anticipate that the government will print money to pay off its debt in the future, they may expect inflation to rise. To avoid the loss of purchasing power that comes with inflation, individuals might prefer to spend their money now on goods and services, thereby increasing the current demand and potentially raising the current price level.

Question 4

Approximately what share of the U.S.public debt is held by federal government agencies and NOT held by the public?

Accepted Answer

The answer of Approximately what share of the U.S.public debt...

Question 5

The crowding-out effect

Accepted Answer

The crowding-out effect asserts that expansionary fiscal policy will increase the demand for credit, which will drive up interest rates, leading to a reduction in private investment and consumption. This occurs because the increased demand for credit causes the price of credit (i.e., interest rates) to rise, making it more expensive for businesses and households to borrow money. As a result, they reduce their spending, leading to a partial or complete offset of the government's fiscal stimulus.

Question 6

An excess of government revenues over expenditures

Accepted Answer

An excess of government revenues over expenditures is called a surplus.

Question 7

During the last 30 years,the federal government budget has

Accepted Answer

The federal government budget recorded surpluses for a few years around the turn of the millennium, specifically from 1999 to 2001, mainly due to economic growth and fiscal policies in place at the time.

Question 8

Large federal government budget deficits financed by foreign lenders tend to

Accepted Answer

Large federal government budget deficits financed by foreign lenders tend to increase the demand for foreign currency, leading to a strengthening of the foreign currency relative to the domestic currency. This makes exports more expensive and reduces net exports.

Question 9

When the government finances a deficit by selling its securities to the Fed

Accepted Answer

When the government sells its securities to the Fed, it increases the Fed's holdings of government securities and therefore increases the money supply. This leads to an increase in aggregate demand and an increase in the price level. Therefore, there will be increases in the money supply, aggregate demand, and price level.

Question 10

The idea that an economy experiencing considerable unemployment and government deficit spending may increase output,which in turn may increase investment,is called the crowding-________ effect.

Accepted Answer

The correct term is "crowding-in" effect, which suggests that government deficit spending can lead to increased economic output and investment, particularly in situations of high unemployment.

Question 11

When evaluating the size of the annual federal budget deficit,it is useful to express it as a percentage of the

Accepted Answer

Expressing the annual federal budget deficit as a percentage of the economy's GDP provides a measure of the government's deficit in relation to the size of the overall economy. This allows for a comparison of the deficit over time and between different economies of varying sizes.

Question 12

When the government finances its expenditures by borrowing from consumers and business firms

Accepted Answer

When the government borrows from consumers and business firms, it increases the demand for loanable funds, leading to an increase in interest rates. Higher interest rates make it more expensive for private firms to borrow money, reducing their investment spending. This crowding out effect can lead to a decrease in overall economic growth.

Question 13

If the government goes into the credit market to finance a current budget deficit,the

Accepted Answer

When the government borrows to finance a budget deficit, it increases the demand for loanable funds, shifting the demand curve to the right. This is because the government needs to borrow more from the public, which increases the overall demand for loans in the economy.

Question 14

The difference between the budget deficit and the national debt is that the deficit is

Accepted Answer

The budget deficit is the difference between the government's expenditures and revenues in a given year. This deficit is financed by borrowing. The national debt, on the other hand, is the total amount owed by a government from borrowing over time. Therefore, the difference between the two is that the deficit is a short-term concept, while the debt is a long-term concept. Hence, E is the best choice.

Question 15

If government revenues fall short of expenditures,the difference can be financed by

Accepted Answer

If government revenues fall short of expenditures, the difference can be financed by borrowing or creating new money. This can be done by issuing bonds, selling securities, or simply printing new currency. Reducing taxes or buying gold would not address the immediate deficit, reducing the national debt would not provide immediate funding, and declaring bankruptcy is not a viable option for a government.

Question 16

The phenomenon of a government deficit accompanied by a tight money policy,leading to a rise in interest rates and causing a reduction in private spending,is an example of

Accepted Answer

The scenario described in the question is a typical example of the crowding-out effect. When the government runs a deficit, it increases its demand for credit, which causes interest rates to rise. This rise in interest rates makes it expensive for private investors to borrow money, hence reducing their spending. This, in turn, offsets the expansionary impact of the government's deficit spending, leading to a net decline in total spending or "crowding out."

Question 17

-Which of the following countries in the table above has the most burdensome budget deficit?

Accepted Answer

The answer of 
-Which of the following countries in the...

Question 18

The ways the federal government can finance its expenditures

Accepted Answer

The federal government can finance its expenditures by raising taxes, borrowing, and creating new money. Taxes provide revenue for the government, borrowing allows the government to issue bonds and raise funds from investors, and creating new money involves the Federal Reserve printing more currency. Option A is incorrect because selling gold holdings is not a sustainable long-term solution. Option B is incorrect because it only lists one way (raising and lowering taxes), while in reality, borrowing and creating new money are also options. Option D is incorrect because exporting more than importing does not directly provide revenue for the government. Option E is incorrect because while financing expenditures can lead to an increase in the national debt, it is not necessarily true that all financing methods will always result in a higher national debt.

Question 19

A budget deficit has its inflationary impact reduced by

Accepted Answer

Borrowing from the public to finance a budget deficit can reduce its inflationary impact because it withdraws excess money from the economy, which might otherwise increase demand and lead to inflation. Choices B and C typically add more money into circulation, increasing inflationary pressures, while D can increase demand and potentially inflation. E is a result of borrowing and does not directly impact inflation in the context of this question.

Question 20

One generally recognized problem of large government budgetary deficits is

Accepted Answer

Large government budgetary deficits can lead to higher interest rates, which can crowd out private investment. Additionally, they can affect the exchange rate, potentially lowering exports.

Quiz 24: Surpluses,deficits,public Debt,and the Federal Budget