Deck 18: Treasury Auctions, Public Debt, and Government Borrowing: Exploring the Us Treasury System

Question 1

The taxing and spending programs of the federal government designed to promote national economic goals are known as fiscal policy.

Answer 1

True

Question 2

The federal government's budget has been in surplus in only three fiscal years since 1931.

Answer 2

False

Question 3

From 1970 - 1997, the U.S. federal government's budget was in deficit.

Answer 3

True

Question 4

According to your text, the principal source of federal government revenues is income taxes levied against corporations.

Question 5

Social Security taxes represent approximately 42 percent of all federal budget revenues.

Question 6

U.S. citizens were subject to higher and higher effective tax rates during the 1970s.

Question 7

Inflation tends to increase the size of government budget deficits and the size of the public debt.

Question 8

The U.S. public debt is the largest single collection of securities available in the financial system today.

Question 9

According to your text, securities issued by the U.S. Treasury are regarded by investors as having zero default risk.

Question 10

U.S. government securities carry zero market risk.

Question 11

The longer the term to maturity of a U.S. government security, the greater its market risk.

Question 12

The principal role of U.S. government securities in the financial system is to minimize risk.

Question 13

Relative to the national income the public debt has declined over the long term.

Question 14

The gross public debt of the United States is larger than the total volume of mortgage debt outstanding in the U.S. economy.

Question 15

The non-interest-bearing public debt of the U.S. represents about 10 percent of the nation's gross public debt.

Question 16

The U.S. Treasury exercises the greatest measure of control over the nonmarketable public debt, yet it is the marketable public debt which has the greatest impact on the cost and availability of credit in the nation's financial markets.

Question 17

Two activities that the U.S. Treasury pursues on a continuing basis are fiscal policy and debt-management policy.

Question 18

A budget deficit requires the Treasury to borrow in the financial markets while a budget surplus allows the Treasury to build cash balances or retire debt.

Question 19

The ultimate purpose of the Economic Recovery Tax Act of 1981 was to stimulate added savings by individuals and families providing additional funds for basic investment.

Question 20

Large federal deficits may be funded by the issuance of new debt securities by the Treasury. The effect of these Treasury borrowings on financial market conditions and the economy depends on the source of borrowed funds.

Question 21

U.S. Treasury borrowing directly from the Federal Reserve is equivalent to printing money and is highly inflationary.

Question 22

If the economy is at full employment and the federal deficit is funded by borrowing from the nonbank public, a likely effect will be increased prices.

Question 23

The key to understanding the effects of government borrowing is to consider how the government plans to spend the borrowed funds.

Question 24

The net effect on the nation's money supply and legal reserves held of Treasury borrowings from the nonbank public is an increase in the money supply and a decrease in legal reserves.

Question 25

The Tax Reform Act of 1986 was designed to be neutral in its effect on financial conditions.

Question 26

Government borrowing from depository institutions tends to increase total income and spending in the economy.

Question 27

Treasury borrowings from either the nonbank public, depositories or Federal Reserve banks tend to increase income and total spending in the economy.

Question 28

The options available to the Treasury to finance a federal deficit are: drawing on accumulated cash balances, issuing new debt securities or printing money.

Question 29

Treasury borrowings from the Federal Reserve are equivalent to printing money because there is no offsetting withdrawal of reserves from depositories or from the public's deposit accounts.

Question 30

U.S. Treasury borrowings from depositories are closely monitored by Congress and usually allowed only in times of "national emergency" such as a major economic recession.

Question 31

Budget surpluses indicate a withdrawal of greater amounts from the economy through tax collections than is put back into the economy through government spending. In the U.S. surpluses are generally saved to cover deficits in later years.

Question 32

The impact of government debt retirement depends on who holds the debt securities the government retires.

Question 33

Retirement of government debt held by the nonbank public is likely to reduce prices and increase unemployment.

Question 34

The net effect of retiring government securities held by the nonbank public is a reduction in total spending. This occurs because money is transferred from the general public to investors.

Question 35

To achieve the maximum deflationary impact on the economy, government debt held by depository institutions should be retired.

Question 36

Treasury borrowing from the Federal Reserve is equivalent to creating money; retiring government debt held by the Federal Reserve is equivalent to destroying money.

Question 37

Lengthening the average maturity of the public debt tends to increase long-term interest rates relative to short-term interest rates.

Question 38

If the public debt is shortened in maturity the yield curve will tend to flatten out if positively sloped.

Question 39

According to the textbook, most authorities are convinced that debt management does have a major impact on the economy and is generally more powerful than either monetary or fiscal policy.

Question 40

Lengthening the maturity of the public debt generally reduces the public's demand for money.

Question 41

Fiscal policy is known to have short a predictable lags.

Question 42

New Treasury securities may be bid for and purchased only from the Bureau of the Public Debt.

Question 43

The Treasury most frequently uses the Dutch auction when it issues new securities.

Question 44

In a uniform price auction, all successful bidders for federal government securities pay the stop-out price.

Question 45

Under the yield auction method, dealers bidding the highest prices receive bills until all available bills are allocated.

Question 46

Under the yield auction method, dealers bidding the highest yield receive bills until all available bills are allocated.

Question 47

Treasury reverse auctions are likely in a period of economic recession.

Question 48

In 1992 the U.S. Congress passed a balanced budget amendment in order to move the United States government closer to equality of revenues and expenditures.

Question 49

The ratio of the Federal budget deficit to U.S. GDP has actually fallen in the most recent years.

Question 50

Foreign holdings of U.S. Treasury securities have fallen in recent years as foreign stocks and bonds have become more popular.

Question 51

Smaller financial institutions and individuals account for most of the bids placed in each U.S. Treasury auction.

Question 52

Increased short-term borrowing by the U.S. Treasury in recent years has been carried out with objectives of savings in interest costs and a reduction in the size of federal deficits.

Question 53

A U.S. federal budget surplus means that the Treasury will no longer have to borrow.

Question 54

Because of the strong economic growth of the 1990's, the public debt of the U.S. has fallen to its lowest level since 1960.

Question 55

His campaign statement "a public debt is a public curse" helped President Clinton's reelection effort in 1996.

Question 56

U.S. Treasury securities trade worldwide, with daily volume averaging well over $100 billion.

Question 57

In a "reverse auction", the Treasury will solicit redemption prices from securities holders.

Question 58

Because the interest rates on Treasury note and bonds are fixed, the interest burden on the U.S. taxpayer remains unchanged when market interest rates increase.

Question 59

The Economic Growth and Tax Relief Reconciliation Act of 2001 lowered personal tax brackets and gradually phased out social insurance taxes.

Question 60

Not including interest, the US public debt amounts to $40,365 on a per capita basis.

Question 61

The gross public debt of the U.S. reached $12 billion in 2009.

Question 62

Among the most attractive marketable treasury obligations in recent years have been treasury inflation protected securities (TIPS) whose value rose from zero in 1996 to a 2009 value of nearly $570 billion.

Question 63

New US Treasury IOUs around the globe have totaled more than $3 trillion annually in recent years, fueled by close to 500 treasury auctions per year.

Question 64

The US treasury does not set the interest, coupon or discount, rate but leaves the determination of both interest rate and price to the auction process itself.

Question 65

The U.S. Treasury today uses a system where all successful bidder does wind up paying the same price and is called a uniform or single price auction.

Question 66

Smaller volume investors, including individuals, can place noncompetitive tenders which is in agreement to accept the single price established in the auction for US treasuries.

Question 67

The marketable public debt in the United States is issued today in book entry form, which means investors receive an engraved certificate and receive a statement of account.

Question 68

Treasury IOUs issued in the most recent auction are referred to as "on the run," while those issued in earlier auctions are labeled "off the run".

Question 69

On the run securities tend to be more liquid and trade at somewhat higher prices than off the run Treasury IOUs.

Question 70

In the 21st century, the federal government was passing a bigger share of welfare and social programs back to the States, adding to their borrowing needs.

Question 71

While more state and local government funds are needed as the population continues to grow, it is not clear those needed funds can be raised at reasonable cost, given the current structure and rules surrounding the market for municipals.

Question 72

Significant cuts in individual income tax rates as well accelerated depreciation allowances, inflation-adjusted tax rates and income tax deductions were accomplished for the first time in several years with the passage of the:

A) Economy Recovery Tax Act
B) Tax Reduction Act of 1975
C) Gramm-Rudman-Hollings Act
D) Tax Reform Act of 1986
E) None of the above

Question 73

Adjusting income tax brackets and tax deductions for inflation is designed to eliminate:

A) Inflation
B) Unemployment
C) Bracket creep
D) Tax cheating
E) None of the above

Question 74

According to your text, the largest percentage of federal budget expenditures goes for:

A) National defense
B) Interest on the national debt
C) Education
D) Income security
E) Agriculture
F) None of the above

Question 75

Added government borrowing to finance a deficit tends to:

A) Decrease the nation's equilibrium income
B) Increase the equilibrium interest rate
C) Decrease the equilibrium interest rate
D) Decrease both equilibrium income and the interest rate
E) None of the above

Question 76

If the Treasury is compelled by a sizable budget deficit to borrow funds from the nonbank public, all of the following effects are likely except one. Which effect is not likely to happen?

A) Nation's money supply will increase
B) Total spending in the economy will increase
C) Total consumption expenditures will increase
D) Interest rates are likely to rise, at least in the short run
E) All of the above are likely to happen

Question 77

If the Treasury is compelled by a sizable budget deficit to borrow funds from depository institutions, all of the following effects are likely except one. Which effect is not likely to happen?

A) Nation's money supply will increase
B) Total reserves of depository institutions will increase
C) Excess reserves of depository institutions are likely to fall
D) Total spending and interest rates will probably rise
E) All of the above are likely to happen

Question 78

If the Treasury is compelled by a sizable budget deficit to borrow funds from the Federal Reserve banks, all of the following effects are likely except one. Which effect is not likely to happen?

A) Nation's money supply will increase
B) Total reserves of depository institutions will increase
C) Total spending in the economy will rise
D) Interest rates will tend to rise
E) All of the above are likely to happen

Question 79

Suppose the Treasury is faced with a budget surplus and chooses to retire debt previously issued. According to your text, several effects are likely to occur if the retired debt was held by the nonbank public. Which effect listed below is not likely to happen in this case?

A) Nation's money supply is likely to fall
B) Total spending in the economy is likely to fall
C) Interest rates are likely to decline
D) Reserves of depository institutions are likely to be unchanged
E) All of the above are likely to happen

Question 80

Suppose the Treasury is faced with a budget surplus and chooses to retire debt previously issued. According to your text, several effects are likely to occur if the retired debt was held by depository institutions. Which effect listed below is not likely to happen in this case?

A) The money supply will fall in the short run
B) Total reserves of depository institutions should be unchanged
C) Excess reserves will increase
D) Total spending should rise
E) All of the above are likely to happen