Question 1

If the federal government were to run a budget surplus, this would

Accepted Answer

Running a budget surplus means that the government is collecting more revenue (taxes and other sources of income) than it is spending on programs and services. This excess revenue can be used to pay down the national debt, which is the total amount of money owed by the government. Therefore, running a budget surplus would reduce the size of the national debt.

Question 2

If the federal government runs a budget deficit, but the budget deficit as a percent of GDP is less than the growth rate of real output, the

Accepted Answer

If the budget deficit as a percent of GDP is less than the growth rate of real output, the economy is expanding faster than the government is borrowing money. As a result, the debt as a share of GDP will decrease because the economy is growing at a faster rate than the debt is accumulating.

Question 3

In 2011, approximately what percent of the national debt was held by federal government agencies?

Accepted Answer

In 2011, approximately 32 percent of the national debt was held by federal government agencies.

Question 4

Which of the following is true?

Accepted Answer

When a government has a budget deficit, it means that its spending exceeds its revenue. As a result, the government must borrow money to cover the shortfall. This borrowing adds to the national debt, which is the total amount of money that the government owes to its creditors. Therefore, a budget deficit will increase the national debt.

Question 5

The sum of all past budget deficits and surpluses of the federal government is the

Accepted Answer

The sum of all past budget deficits and surpluses of the federal government is the national debt. This represents the total amount of money owed by the government to its creditors.

Question 6

It is important to distinguish between the privately held portion of the national debt and the portion held by government agencies and the Federal Reserve system because

Accepted Answer

The portion of the national debt held by government agencies and the Federal Reserve system does not create a net interest liability for the federal government because the interest paid on this debt is returned to the federal government as profits by these entities. Only the portion of the debt held by private individuals and foreign governments creates a net interest liability, which must be paid by the federal government.

Question 7

How does inclusion of the current revenues and expenditures of the Social Security trust fund into the budget calculation currently affect the reported budget deficit of the federal government?

Accepted Answer

The answer of How does inclusion of the current revenues...

Question 8

The national debt is

Accepted Answer

The national debt is the cumulative effect of all past budget deficits and surpluses of the federal government. It represents the total amount of money owed by the government to its creditors, including individuals, corporations, foreign governments, and other entities. It is not the same as the budget deficit, which is the difference between the government's revenues and expenses in a given fiscal year.

Question 9

What determines the creditworthiness of any organization, including the federal government?

Accepted Answer

The creditworthiness of an organization, including the federal government, is primarily determined by its ability to repay its debts. This ability is assessed by looking at the size of its debt relative to its income base, known as the debt-to-income ratio. A higher debt-to-income ratio indicates a higher risk of default, which can negatively impact an organization's creditworthiness. Factors such as interest rates, time in existence, and expected operation time can also play a role but are not as significant in determining creditworthiness as the debt-to-income ratio.

Question 10

In 2009, a little more than half of the privately held national debt was held by

Accepted Answer

The answer of In 2009, a little more than half...

Question 11

What is the difference between the federal budget deficit and the national debt?

Accepted Answer

The budget deficit is the amount by which expenditures exceed revenues in a particular year, while the national debt is the cumulative effect of all past budget deficits and surpluses. In other words, the budget deficit is a yearly measure of government spending and revenue, while the national debt is the total amount of money owed by the government from all past deficits and surpluses.

Question 12

Suppose a new country is formed, and its government has the following revenues and expenditures for its first three years of existence. 
Which of the following is correct regarding this government?

Accepted Answer

To find out the national debt after the third year, we need to calculate the cumulative budget balance for the first three years:

First year: 10 - 7 = $3 surplus
Second year: 20 - 15 = $5 surplus
Third year: 30 - 25 - 5 = $0 balance (i.e., a $5 deficit)

Therefore, the government had a deficit of $5 in the third year. To find out the national debt after the third year, we need to add up the cumulative deficits (i.e., $10 + $20 + $5 = $35). However, the question asks for the debt after the third year, so we need to subtract the cumulative surpluses until the end of the third year (i.e., $3 + $5 = $8), which gives us a national debt of $27. Therefore, the correct answer is D: In the third year, it ran a $5 deficit, and its national debt after the third year is $25.

Question 13

The national debt is the

Accepted Answer

The national debt is the total amount of money that a government owes to lenders in the form of bonds, bills, and notes. These are interest-bearing securities that the federal government issues in order to finance its operations, including the funding of programs like Social Security and Medicare, as well as to pay for things like national defense and infrastructure projects. This debt is not the sum of personal debts or imports and exports, and it does not represent the net personal debts of Americans to foreigners.

Question 14

At year-end 2010, the national debt of the United States was approximately

Accepted Answer

The answer of At year-end 2010, the national debt of...

Question 15

The total indebtedness of the federal government in the form of outstanding interest-earning bonds is the

Accepted Answer

The national debt is the total amount of money that the federal government owes in outstanding interest-earning bonds. The budget deficit refers to the difference between government spending and revenue in a given year, while the budget surplus refers to the excess of revenue over spending. The trade deficit refers to the difference between a country's imports and exports.

Question 16

During the 1950s and 1960s, the national debt as a percent of GDP in the United States

Accepted Answer

The answer of During the 1950s and 1960s, the national...

Question 17

In 2011, approximately what percent of the national debt was held by the Federal Reserve system?

Accepted Answer

In 2011, approximately 10 percent of the national debt was held by the Federal Reserve system.

Question 18

If the federal government runs a budget deficit, and the budget deficit as a percent of GDP is equal to the growth rate of real output, the

Accepted Answer

If the budget deficit as a percent of GDP is equal to the growth rate of real output, the national debt will remain a constant share of GDP. This is because the deficit is being financed by borrowing, which increases the debt, but economic growth is also increasing the GDP, which offsets the increase in debt as a share of the economy. The dollar value of the debt may still increase, but the focus of the question is on the debt as a share of GDP.

Question 19

If the federal government were to run a budget deficit, this would

Accepted Answer

When the federal government runs a budget deficit, this means that its expenditures for the year are greater than its revenues. In order to finance this deficit, the government borrows money by issuing bonds. These bonds add to the national debt, which is the total amount of money the government owes to its creditors. Therefore, running a budget deficit increases the size of the national debt.

Question 20

From a public choice viewpoint, the persistent budget deficits of recent decades are

Accepted Answer

The public choice theory suggests that politicians have an incentive to spend on current programs rather than levy taxes because spending can attract votes while taxes can result in losses. This creates a situation where politicians are incentivized to continue spending despite the potential for budget deficits. Therefore, persistent budget deficits are an expected result of the political incentive structure.

Special Topic 8 : The Federal Budget and the National Debt