Question 1

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

Accepted Answer

The gross public debt of the U.S. in 2009 was much higher than $12 billion; it was over $12 trillion by the end of the fiscal year.

Question 2

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.

Accepted Answer

Treasury Inflation-Protected Securities (TIPS) have indeed become increasingly popular since their introduction in 1997, with their value growing significantly over the years as they offer protection against inflation, making them attractive to investors.

Question 3

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.

Accepted Answer

The U.S. Treasury does issue IOUs (in the form of Treasury bonds, notes, and bills) totaling in the trillions of dollars annually, but the number of Treasury auctions per year is significantly less than 500. Typically, the Treasury conducts around 300 auctions per year.

Question 4

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.

Accepted Answer

The U.S. Treasury uses an auction process to sell its securities, where the interest rates (for fixed-rate securities) or discount rates are determined by the bidding process, rather than being set by the Treasury itself.

Question 5

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.

Accepted Answer

In a uniform or single price auction, all successful bidders pay the same price, which is typically the highest yield or lowest price among the accepted bids. This system is used by the U.S. Treasury for selling securities such as Treasury bills, notes, and bonds.

Question 6

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.

Accepted Answer

Noncompetitive tenders allow smaller volume investors to participate in U.S. Treasury auctions by agreeing to accept the yield determined at the auction, ensuring they receive the security without specifying a price.

Question 7

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.

Accepted Answer

The marketable public debt in the United States is indeed issued in book-entry form, but this means that there are no physical certificates. Instead, investors receive electronic records of their ownership.

Question 8

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".

Accepted Answer

"On the run" securities are the most recently issued U.S. Treasury bonds or notes of a particular maturity. "Off the run" securities are those that were issued in previous auctions and are no longer the newest issue.

Question 9

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

Accepted Answer

On-the-run securities are the most current issue of a given maturity and are traded more frequently, making them more liquid and often resulting in slightly higher prices compared to off-the-run securities, which are older issues with the same original maturity.

Question 10

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.

Accepted Answer

This trend, known as devolution, has seen the federal government transferring more responsibility for welfare and social programs to the states, which in turn can increase the states' need to borrow in order to fund these expanded responsibilities.

Question 11

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.

Accepted Answer

The statement reflects the challenge in raising additional funds for state and local governments due to the existing structure and rules of the municipal market, which may not allow for raising the necessary funds at a reasonable cost as population growth increases demand for services.

Question 12

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:

Accepted Answer

The Economy Recovery Tax Act of 1981 was significant for implementing major tax cuts, including reductions in individual income tax rates, accelerated depreciation allowances, and adjustments for inflation in tax rates and deductions.

Question 13

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

Accepted Answer

Adjusting income tax brackets and tax deductions for inflation is designed to eliminate bracket creep, which occurs when inflation pushes income into higher tax brackets or reduces the value of deductions, leading to an increase in tax liability without an actual increase in real purchasing power.

Question 14

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

Accepted Answer

Income security programs, which include Social Security, unemployment insurance, food assistance programs, and retirement benefits for federal employees, typically account for the largest portion of the federal budget. This category surpasses others like national defense and education in terms of federal expenditure.

Question 15

Added government borrowing to finance a deficit tends to:

Accepted Answer

The answer of Added government borrowing to finance a deficit...

Question 16

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?

Accepted Answer

When the Treasury borrows from the nonbank public, it does not directly increase the money supply. The money supply would typically increase through actions by the central bank, such as purchasing government securities, not through government borrowing from the public.

Question 17

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?

Accepted Answer

When the Treasury borrows funds from depository institutions, it does not increase the total reserves of these institutions. Instead, it shifts existing reserves within the banking system, potentially reducing excess reserves.

Question 18

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?

Accepted Answer

When the Treasury borrows from the Federal Reserve, it effectively increases the money supply and the reserves of depository institutions, which can lead to more spending in the economy. However, this increase in money supply typically leads to lower interest rates, not higher, as the increased supply of money makes borrowing cheaper.

Question 19

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?

Accepted Answer

The answer of Suppose the Treasury is faced with a...

Question 20

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?

Accepted Answer

Retiring debt held by depository institutions typically does not lead to an increase in total spending.

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