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

Question 1

If the fiscal year begins without a budget and Congress fails to pass continuing resolution,then:

A) the president has the right to raise the debt ceiling.
B) federal agencies operate on the basis of the previous year's budget.
C) the interest rate paid on the national debt automatically increases.
D) the federal government shuts down.

Answer 1

D

Question 2

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

A) increase the size of the national debt.
B) reduce the size of the national debt.
C) leave the size of the national debt unchanged.
D) increase the national debt only if the government also expands the supply of money.

Answer 2

A

Question 3

Which of the following groups analyzes federal budgets proposals?

A) The Council of Economic Advisors.
B) The Office of Management and Budget.
C) The Congressional Budget Office.
D) The House and Senate Budget Committees.

Answer 3

C

Question 4

The sum of past federal deficits is reflected in the federal:

A) cyclical debt.
B) Congressional debt.
C) national debt.
D) GDP debt.

Question 5

Which of the following correctly describes the national debt?

A) The excess of annual federal expenditures over annual federal tax revenues.
B) Annual federal expenditures less annual federal tax revenues plus foreign U.S. bonds purchases.
C) The total amount of money owed by the federal government.
D) None of the above.

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:

A) the government will not have to repay the privately held debt.
B) only the privately held debt creates a net interest liability for the federal government.
C) the privately held debt does not create a net interest liability for the federal government.
D) taxes will have to be raised in order to pay the interest on the debt held by the Federal Reserve system.

Question 7

If the national debt rises to the debt ceiling and there is currently a budget ____,the Congress and the President must agree to ____ the debt ceiling or else the federal government will have insufficient funds to pay its bills and will be forced to shut down.

A) surplus, lower
B) deficit, raise
C) surplus, lower
D) none of the above

Question 8

The sum of past federal budget deficits is the:

A) GDP debt.
B) trade debt plus GDP.
C) national debt.
D) Congressional debt.

Question 9

If Congress fails to pass a budget before the fiscal year starts,then federal agencies may continue to operate only if Congress has passed a:

A) balanced budget amendment.
B) deficit reduction plan.
C) conference resolution.
D) continuing resolution.

Question 10

Currently,the Social Security Trust Fund is running a:

A) deficit, which reduces the apparent size of the budget deficit.
B) surplus, which reduces the apparent size of the budget deficit.
C) surplus, which increases the apparent size of the budget deficit.
D) deficit, which increases the apparent size of the budget deficit.

Question 11

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:

A) national debt will decrease as a share of GDP.
B) national debt will remain a constant share of GDP.
C) national debt will increase as a share of GDP.
D) size of the national debt (in dollar value) will decline.

Question 12

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

A) It increases the reported deficit.
B) It reduces the reported deficit.
C) It exerts no effect on the reported deficit.
D) It increases the deficit during an economic boom but reduces it during a recession.

Question 13

Between 1998 and 2001,the federal budget was:

A) never in surplus.
B) in surplus about as often as it was in deficit.
C) in surplus.
D) never in deficit.

Question 14

If the federal government runs a budget ____,then the national debt becomes ____.

A) surplus, larger
B) deficit, smaller
C) surplus, smaller
D) none of the above

Question 15

When the U.S.federal government runs a budget deficit,it borrows money by selling:

A) Treasury bills, notes, and bonds.
B) publicly owned land.
C) its gold reserves.
D) financial assets located in foreign banks.

Question 16

The national debt is the:

A) difference between a nation's exports and imports of goods and services.
B) sum of the personal debt of all citizens in the United States.
C) indebtedness of the federal government in the form of outstanding interest-earning government security.
D) sum of the net personal debts of Americans to foreigners.

Question 17

Each year,the president must submit a budget proposal to Congress by:

A) January.
B) April.
C) July.
D) October.

Question 18

The federal budget process begins when federal agencies submit their budget requests to the:

A) Treasury Department.
B) Council of Economic Advisors (CEA).
C) Office of Management and Budget (OMB).
D) Congressional Budget Office (CBO).

Question 19

The national debt is:

A) the difference between a nation's exports and imports of goods and services.
B) the sum of the personal debt of all citizens in the United States.
C) the cumulative effect of all past budget deficits and surpluses of the federal government.
D) equal to the current size of the budget deficit.

Question 20

Which of the following is true?

A) A budget deficit will have no impact on the national debt.
B) A budget deficit will increase the national debt.
C) A balanced budget will increase the national debt.
D) A budget surplus will increase the national debt.

Question 21

With regard to the national debt,to whom does the federal government owe money?

A) Taxpayers.
B) Federal government workers.
C) The Federal Reserve System.
D) Investors who buy U.S. Treasury bills, bonds, and notes.

Question 22

The national debt is unlikely to cause national bankruptcy because the:

A) national debt can be refinanced by issuing new bonds.
B) interest on the public debt equals GDP.
C) national debt cannot be shifted to future generations for repayment.
D) federal government cannot refinance the outstanding national debt.

Question 23

The total accumulated debt of the federal government due to deficit spending is called the:

A) federal deficit.
B) Congressional debt.
C) deficit debt ceiling.
D) national debt.

Question 24

Which of the following is true?

A) The size of the national debt currently is about the same size as it was during World War II.
B) The national debt increases in size whenever the federal government has a surplus budget.
C) The national debt's size decreased steadily after 1980.
D) The current U.S. national debt is over $13.0 trillion.

Question 25

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

A) U.S. national debt ratio is smaller.
B) U.S. national debt ratio is larger.
C) U.S. national debt ratio is about the same.
D) U.S. national debt ratio is substantially smaller.

Question 26

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

A) Greece.
B) Japan.
C) United States.
D) Canada.
E) Italy.

Question 27

Which of the following statements is true?

A) The national debt as a percentage of GDP is greater today than during any other period in our nation's history.
B) A sizeable external national debt will transfer purchasing power away from foreigners to domestic citizens.
C) Keynesian theory assumes a total crowding out effect associated with deficit spending.
D) future generation must pay interest to finance the national debt.

Question 28

Among the major industrial economies,which of the following had the lowest national debt as a percent of GDP?

A) Canada
B) Australia
C) United States
D) Italy

Question 29

When measured as a percentage of GDP,the U.S.national debt reached its highest levels as a result of:

A) World War II.
B) The Vietnam War.
C) The Reagan defense buildup and tax cut.
D) The Obama economic recovery program.

Question 30

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

A) eventually it will become difficult for the country to borrow in global credit markets.
B) the country will have to pay higher real interest rates in order to induce investors to purchase its bonds.
C) at some point, the country will be more or less forced to bring spending into line with revenues in order to maintain the confidence of investors.
D) all of the above are correct.

Question 31

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

A) 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.
B) The budget deficit is the cumulative effect of all prior national debts.
C) The national debt includes all outstanding bonds, while the budget deficit excludes bonds held by government agencies.
D) This is a trick question because there is no difference between the budget deficit and the national debt.

Question 32

Which of the following is false?

A) The national debt's size decreased steadily after World War II.
B) The national debt increases in size whenever the federal government has a surplus budget.
C) The size of the national debt currently is about the same size as it was during World War II.
D) All of the above are false.
E) All of the above are true.

Question 33

Currently,the national debt is approximately:

A) 50 percent of GDP.
B) 60 percent of GDP.
C) 90 percent of GDP.
D) 120 percent of GDP.

Question 34

To finance a federal budget deficit,the U.S.Treasury borrows by selling:

A) Treasury bills.
B) Treasury notes.
C) Treasury bonds.
D) All of the above.

Question 35

Which of the following statements is true?

A) The national debt is the current year's amount by which the government is spending more than it collects as taxes.
B) Deficits are financed by the government issuing for sale more government securities.
C) The debt ceiling refers to the amount of debt at which the government is officially declared as being bankrupt.
D) Internal national debt is the portion of the national debt owed to foreigners.

Question 36

If the federal government has a budget surplus,then the national debt is:

A) reduced.
B) fully repaid.
C) negative.
D) interest-free.

Question 37

Between 1945 and 1980,the national debt as a percent of GDP:

A) decreased slightly.
B) decreased substantially.
C) remained about the same.
D) increased slightly.
E) increased substantially.

Question 38

The national debt is unlikely to cause national bankruptcy because the federal government can:

A) raise taxes.
B) print money.
C) refinance its debt.
D) all of the above.

Question 39

The sum of past federal budget deficits increases the:

A) GDP debt.
B) trade debt plus debt.
C) national debt.
D) Congressional debt.

Question 40

The national debt is best described as the:

A) amount by which this year's federal spending exceeds its taxes.
B) value of all U. S. Treasury bonds owned by foreigners.
C) sum of all federal budget deficits, past and present.
D) percentage of GDP needed to finance a country's investment.

Question 41

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

A) Foreigners.
B) Federal, state, and local governments and the Federal Reserve.
C) Private individuals, banks, and corporations.
D) None of the above.

Question 42

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

A) it is the Federal Reserve that will be responsible for making interest payments on the debt.
B) future generations will have to bear the opportunity costs of the resources that are used today.
C) future generations will not be liable for the interest obligations of the national debt.
D) future generations will inherit the interest income as well as the interest obligations.

Question 43

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

A) declined.
B) doubled.
C) tripled.
D) quadrupled.

Question 44

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

A) treasury bonds held by government agencies
B) treasury bonds held by private investors
C) treasury bonds held by the Federal Reserve system
D) treasury bonds held in the Social Security Trust Fund

Question 45

"Crowding in" refers to federal government deficits:

A) used for public infrastructure which will offset any decline in business investment.
B) which reduce private business and consumption spending.
C) which reduce future rates of economic growth.
D) all of the above.

Question 46

Supply-side economists argue that less government spending:

A) will contract the productive side of the economy.
B) will result in more crowding out.
C) causes higher rates of unemployment and inflation.
D) would cause interest rates to increase dramatically.
E) would make more investment capital available at lower rates of interest to the private sector.

Question 47

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

A) increase the national debt.
B) increase interest rates.
C) decrease borrowing by households and businesses
D) reduce the impact of the spending multiplier implies because of crowding out.
E) all of the above.

Question 48

Supply-siders argue that:

A) reductions in government spending cut infrastructure investment which hurts private sector investment.
B) increases in government spending increase infrastructure investment which helps private sector investment.
C) increases in government spending causes private sector investment to fall because the government pushes up interest rates.
D) reductions in government spending cause private sector investment to fall because the government pushes up interest rates by borrowing.
E) increases in government spending causes consumption spending to fall because the government purchases push up interest rates.

Question 49

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

A) The welfare of future generations will be directly related to the per-capita size of the national debt that they inherit.
B) Growth of the national debt will eventually lead to the bankruptcy of the government.
C) When the debt comes due, future generations may be unable to pay it off.
D) If the increases in the national debt reduce private expenditures on capital formation, aggregate demand is reduced.

Question 50

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

A) reduce interest rates.
B) increase interest rates and retard private investment.
C) reduce the investments of foreigners in the United States.
D) increase the capital stock available to future generations.

Question 51

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

A) About 25 percent.
B) About 20 percent.
C) About 30 percent.
D) About 60 percent.

Question 52

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 ____.

A) foreigners, foreigners
B) other U.S. citizens, bondholders
C) foreigners, those needing government services
D) other U.S. citizens, those needing government services

Question 53

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

A) Bonds owned by the banks and insurance companies.
B) Bonds owned by the Social Security Administration.
C) Bonds owned by private individuals.
D) Bonds owned by foreigners.
E) All of the above.

Question 54

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:

A) 15 percent.
B) 20 percent.
C) 40 percent.
D) 30 percent.
E) 50 percent.

Question 55

External debt is that portion of the national debt:

A) held by private investors.
B) held by the Federal Reserve.
C) that the United States does not intend to repay.
D) held by foreigners.

Question 56

The crowding-out effect refers to:

A) higher interest rates and reduced private spending that results from financing federal budget deficits.
B) higher future taxes accompanying budget deficits to reduce private consumption.
C) the inflation rate to rise when the unemployment rate is low.
D) increases in private savings to reduce interest rates and, thereby, crowd-out government

Question 57

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

A) It will make fiscal policy more potent.
B) It will make fiscal policy less potent.
C) The potency of fiscal policy will be unaffected.
D) The potency of expansionary fiscal policy will be reduced.

Question 58

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

A) The federal government would not need to refinance the national debt.
B) The federal government would not need to worry about raising taxes to pay interest on the national debt.
C) We would still be concerned about the effect on the distribution of income from interest payments on the national debt.
D) All of the above are true.

Question 59

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

A) 1 percent.
B) 5 to 9 percent.
C) 10 to 14 percent.
D) 15 to 19 percent.
E) 20-25 percent.

Question 60

Supply-siders feel that high levels of government spending:

A) assist private sector investing by creating infrastructure.
B) have no impact on private sector investment.
C) complement private spending.
D) cause private sector investment to decline because of crowding out.
E) cause private sector spending to decrease because of increases in corporate taxes to finance the government spending.

Question 61

"Crowding out" refers to federal government deficits financed by:

A) borrowing which increases interest rates and thereby reduces private spending.
B) increasing taxes which reduces private spending.
C) the federal government buying foreign debt which reduces the amount of government spending and government programs.
D) reducing government spending which reduces interest rates.

Question 62

Which of the following statements about crowding out is false?

A) It is not caused by a budget surplus.
B) It is caused by a budget deficit.
C) It can completely offset the multiplier.
D) It affects interest rates and not economic growth.

Question 63

Currently,the U.S.national debt is more than $20 trillion.

Question 64

Critics of Keynesian fiscal policy argue that deficit spending will not stimulate the economy,because higher interest rates will discourage consumption and investment.This argument is known as the:

A) deficit-substitution effect.
B) multiplier effect.
C) burden-of-debt effect.
D) crowding-out effect.

Question 65

The U.S.Treasury is responsible for preparing and submitting the initial budget recommendation to the president.

Question 66

"Crowding in" refers to federal government deficits:

A) used for public infrastructure which will offset any decline in business investment.
B) which reduce private business and consumption spending.
C) which reduce future rates of economic growth.
D) all of the above.

Question 67

The crowding-out effect can be:

A) zero.
B) partial.
C) complete.
D) any of the above.

Question 68

When crowding out occurs,higher government spending results in higher interest rates,which in turn results in:

A) higher inflation.
B) less consumption and investment.
C) a larger debt ceiling.
D) more tax revenues.

Question 69

Crowding out refers to the situation in which:

A) borrowing by the federal government raises interest rates and causes firms to invest less.
B) foreigners sell their bonds and purchase U.S. goods and services.
C) borrowing by the federal government causes state and local governments to lower their taxes.
D) increased federal taxes to balance the budget causes interest rates to increase and consumer credit decreases.

Question 70

A concern about crowding out caused by increased government borrowing is that:

A) interest rates on private borrowing fall.
B) lower rates of economic growth can result from a decline in business investment spending.
C) the federal government may default on its loans.
D) foreign lenders find it less attractive to help finance federal deficits.

Question 71

Which of the following statements about crowding out is true?

A) It can completely offset the multiplier.
B) It is caused by a budget deficit.
C) It is not caused by a budget surplus.
D) All of the above are true.

Question 72

The United States has a much higher national debt as a percentage of GDP compared to other industrialized nations.

Question 73

The federal government never has to pay off the national debt.

Question 74

The debt ceiling places a legal limit on the size of the national debt.

Question 75

Crowding out occurs when the federal government:

A) raises taxes to finance a budget deficit.
B) refinances maturing U.S. Treasury bonds.
C) borrows by selling bonds to finance a deficit.
D) uses a budget surplus to pay off part of the national debt.

Question 76

The way to prevent the national debt from growing is for the budget not to be in deficit.

Question 77

When we speak of the national debt,we refer to the federal government debt only.

Question 78

Between 1960 and 1997,the federal budget was never in surplus.

Question 79

The national debt as a percentage of GDP has remained roughly constant since the end of World War II.

Question 80

The federal budget deficit has been over 30 percent of GDP since the early 1980s.