Question 1

High interest rates contribute to a lower federal budget deficit.

Accepted Answer

High interest rates increase the cost of borrowing, which can lead to higher interest payments on the national debt, potentially increasing the federal budget deficit.

Question 2

If raising taxes or borrowing are your only two choices of financing current expenditures,which would you choose,and why,if you were in charge of setting policy?

Accepted Answer

The answer of If raising taxes or borrowing are your...

Question 3

We have learned from this chapter that the real value of the debt is eroded by inflation and may be overestimated because of it and other factors.Do you feel that the debt will be a major concern during your working lifetime and retirement?

Accepted Answer

The answer of We have learned from this chapter that...

Question 4

In the year 2008,nearly half of all privately held federal debt was held by foreign investors.

Accepted Answer

The answer of In the year 2008,nearly half of all...

Question 5

Ricardian view on debt is that the form of government finance is irrelevant

Accepted Answer

Ricardian equivalence theory argues that the form of government finance (whether it is through debt or taxes) does not have any significant impact on the economy in the long run since individuals will adjust their behavior based on their expectations of future taxation or debt repayment. Therefore, the Ricardian view on debt is that the form of government finance is irrelevant.

Question 6

From an efficiency standpoint,one must compare the excess burdens of tax and debt finance.

Accepted Answer

Comparing the excess burdens of tax and debt finance is important from an efficiency standpoint as it helps in determining which mode of financing is more efficient.

Question 7

The deficits of the 1980s can be regarded as structural.

Accepted Answer

The deficits of the 1980s were caused by underlying structural issues such as increased military spending and tax cuts, rather than temporary or cyclical factors.

Question 8

You make a loan to the government of $100.The government promises to pay you back some sum of money in two years.The interest rate will be 4 percent over that period,but inflation will be 4 percent.How much will you require that the government pay you in two years in the absence of any inflation? With inflation?

Accepted Answer

The answer of You make a loan to the government...

Question 9

Suppose,in 2008,the federal debt was $5 trillion.That year,the United States ran a deficit of $455 billion.During the course of the year,the inflation rate was 3.8%.How much is the "inflation tax"?

Accepted Answer

The answer of Suppose,in 2008,the federal debt was $5 trillion.That...

Question 10

-Refer to Figure 20.3.Suppose the equation that equates excess burden to the tax rate can be written as EB = t²,where EB is excess burden and t is the tax rate. (A)Suppose the tax rate t is initially 12 percent.How much excess burden is generated? (B)If the tax rate doubles to 24 percent,what happens to excess burden?

Accepted Answer

The answer of 
-Refer to Figure 20.3.Suppose the equation that...

Question 11

Total Government Debt is the sum of previous surplus and deficits.

Accepted Answer

Total government debt is calculated by adding up all the previous deficits (where the government has spent more than it has earned) and surpluses (where the government has earned more than it has spent). This gives the overall amount of debt that a government has accumulated over time.

Question 12

If we assume that government borrowing crowds out private investment,then future generations will have a smaller capital stock.Ricardo's view is that this will not be the case,because people are forward looking.Do you agree?

Accepted Answer

The answer of If we assume that government borrowing crowds...

Quiz 20: Deficit Finance