Question 1

Please describe the current auction method or methods for selling U.S. Treasury securities.

Accepted Answer

The uniform price auction method is the principal means of selling Treasury notes, bonds and bills today. The Treasury announces the amount of securities available and calls for bids. Competitive tenders (over $1 million) bid aggressively, trying to offer a price high enough to win an allotment but not too high. Treasury bill bids are based upon the discount rate (DR), while investors submitting competitive bids for Treasury notes and bonds express their offers on an annual percentage yield to maturity basis. Noncompetitive tenders (less than $1 million) accept the price determined by the auction. Generally, the Treasury fills all noncompetitive orders.
Federal Reserve officials open all bids at the specified time and arrange them from the highest to the lowest price bid (lowest to highest yields). The allocation begins with the highest bidder on down until all available securities are allocated. The lowest successful price bid, known as the "stop-out"
(or market-clearing) price, becomes the common price that all successful bidders actually pay to the Treasury.

Question 2

What problems exist when you try to measure the true size of the government's debt? Do you have any suggestions on how to deal with this measurement problem?

Accepted Answer

The size of the public debt is sensitive to both inflation and interest rates. Inflation tends to increase budget deficits and requires the government to borrow more in nominal terms. When interest rates rise, the market value (as opposed to the par or face value) of the debt falls. Also, to get a true measure of the debt's net size we need to consider assets owned by government and possibly contingent liabilities (such as deposit insurance programs and government loan guarantees) which might at some future date add to the government's debt burden.

Question 3

What exactly is fiscal policy? Debt management policy?

Accepted Answer

Fiscal policy involves the decisions by Congress on how much to spend and on what projects and also on the sources of tax revenue and desired tax rates, so as to promote various economic goals. Debt management refers to the refunding or refinancing of the federal government's debt that results from incurring annual budget deficits, in a way that contributes to its economic goals and minimizes the debt burden.

Question 4

Foreign holdings of U.S. public debt totals approximately _______.

Accepted Answer

A)  20% 
B)  50% 
C)  75% 
D)  Zero, as foreigners cannot legally hold U.S. public debt 
E)  None of the above 
A)  20% 
B)  50% 
C)  75% 
D)  Zero, as foreigners cannot legally hold U.S. public debt 
E)  None of the above

Question 5

As can be seen from the above table, the budget is in a $55 billion surplus position. If the assumption is made that the government will retire debt, the likely effect will be to reduce total spending in the economy. Under that scenario, prices, employment and interest rates will fall. Note that this net result can occur whether the retired debt is purchased from the nonbank public, depository institutions or Federal Reserve Banks.
What were the government's total revenues and expenditures in the most recent fiscal year? Was the budget in surplus or deficit? All other factors held constant, what is likely to happen to the economy's level of income and interest rates as a result of this year's government budget position? Please explain the reasoning behind your answer to this last question.

Accepted Answer

Suppose the U. S. federal gove

Question 6

The Fed's policy of "even keel"
refers to its objective of countering a rise in unemployment by supplying additional reserves to the banking system.

Accepted Answer

A) True 
 B)False

Question 7

Due to drastic cuts in federal spending and strong economic growth it now appears that the federal government will experience a $10 billion budget surplus during the current fiscal year.

Accepted Answer

If the Treasury plans to retain $2 billi

Question 8

What is meant by the term crowding out effect? What does recent research say about the link between government deficits, interest rates and inflation?

Accepted Answer

Added government deficit spending, in th

Question 9

Please explain how fiscal and debt management policy might be used to help fight inflation and unemployment. Can you see any weaknesses or potential problems with the frequent use of these policy tools?

Accepted Answer

Fiscal Policy:
The economy will grow fas

Question 10

Please list the principal goals of Treasury debt management. What is the essential difference between housekeeping goals and stabilization goals? To what extent could these goals conflict with each other?

Accepted Answer

The principal goals or objectives pursue

Question 11

The bull public debt totaled about $6.3 trillion in 2006, representing just over half of all interest-bearing US government obligations.

Accepted Answer

A) True 
 B)False

Question 12

Please calculate the following: the total marketable debt; the total nonmarketable debt; the total interest-bearing debt; and the gross public debt.

Accepted Answer

Total marketable debt: T-bills $750 + T-

Question 13

On a per capita basis, the public debt of the United States amounts to approximately ____ for every man, woman and child living in the U.S. in 2001.

Accepted Answer

A)  $1,000 
B)  $5,000 
C)  $8,000 
D)  $10,000 
E)  $20,000 
F)$50,000 
A)  $1,000 
B)  $5,000 
C)  $8,000 
D)  $10,000 
E)  $20,000 
F)$50,000

Question 14

The government borrowing is likely to result in increased income and higher interest rates. The nation's production and spending may also increase, thus decreasing unemployment. If there is full employment, inflation may occur.

Accepted Answer

Due to unexpected decline in federal inc

Question 15

Please explain how changes in the maturity structure of the public debt can affect interest rates, the yield curve and spending and saving in the economy.
Long-term Treasury borrowing tends to slow down the economy, while short-term borrowing will have the opposite effect.

Accepted Answer

Most experts agree that in the short run

Question 16

Not including interest, the US public debt, on a per capita basis, amounts to

Accepted Answer

A)  $20,000 
B)  $25,000 
C)  $28,000 
D)  $51,000 
E)  None of the above 
A)  $20,000 
B)  $25,000 
C)  $28,000 
D)  $51,000 
E)  None of the above

Question 17

Please describe the principal types of securities that make up the public debt of the United States. What portions of this debt can the U.S. Treasury Department most closely control?

Accepted Answer

The principal debt securities are Treasu

Question 18

New US Treasury IOUs around the globe have totaled more than $3 trillion annually in recent years, fueled by

Accepted Answer

A)  50 to 100 treasury auctions per year 
B)  150 to 200 treasury auctions per year 
C)  200 to 300 treasury auctions per year 
D)  400 treasury auctions per year 
E)  None of the above 
A)  50 to 100 treasury auctions per year 
B)  150 to 200 treasury auctions per year 
C)  200 to 300 treasury auctions per year 
D)  400 treasury auctions per year 
E)  None of the above

Exam 18: Federal, State, and Local Governments Operating in the Financial Markets

Please describe the current auction method or methods for selling U.S. Treasury securities.

What problems exist when you try to measure the true size of the government's debt? Do you have any suggestions on how to deal with this measurement problem?

What exactly is fiscal policy? Debt management policy?

Foreign holdings of U.S. public debt totals approximately _______.

The Fed's policy of "even keel" refers to its objective of countering a rise in unemployment by supplying additional reserves to the banking system.

Due to drastic cuts in federal spending and strong economic growth it now appears that the federal government will experience a $10 billion budget surplus during the current fiscal year.

What is meant by the term crowding out effect? What does recent research say about the link between government deficits, interest rates and inflation?

Please explain how fiscal and debt management policy might be used to help fight inflation and unemployment. Can you see any weaknesses or potential problems with the frequent use of these policy tools?

Please list the principal goals of Treasury debt management. What is the essential difference between housekeeping goals and stabilization goals? To what extent could these goals conflict with each other?

The bull public debt totaled about $6.3 trillion in 2006, representing just over half of all interest-bearing US government obligations.

Please calculate the following: the total marketable debt; the total nonmarketable debt; the total interest-bearing debt; and the gross public debt.

On a per capita basis, the public debt of the United States amounts to approximately ____ for every man, woman and child living in the U.S. in 2001.

The government borrowing is likely to result in increased income and higher interest rates. The nation's production and spending may also increase, thus decreasing unemployment. If there is full employment, inflation may occur.

Please explain how changes in the maturity structure of the public debt can affect interest rates, the yield curve and spending and saving in the economy. Long-term Treasury borrowing tends to slow down the economy, while short-term borrowing will have the opposite effect.

Not including interest, the US public debt, on a per capita basis, amounts to

Please describe the principal types of securities that make up the public debt of the United States. What portions of this debt can the U.S. Treasury Department most closely control?

New US Treasury IOUs around the globe have totaled more than $3 trillion annually in recent years, fueled by

Functions and Roles of the Financial System in the Global Economy

Financial Assets, Money, Financial Transactions, and Financial Institutions

The Financial Information Marketplace

The Future of the Financial System and the Money and Capital Markets

The Determinants of Interest Rates: Competing Ideas

Measuring and Calculating Interest Rates and Financial Asset Prices

Inflation and Deflation, Yield Curves, and Duration: Impact on Interest Rates and Asset Prices

The Risk Structure of Interest Rates: Defaults, Prepayments, Taxes, and Other Rate-Determining Factors

Interest-Rate Forecasting and Hedging: Swaps, Financial Futures, and Options

Introduction to the Money Market and the Roles Played by Governments and Security Dealers

Commercial Banks, Major Corporations, and Federal Credit Agencies in the Money Market

Roles and Services of the Federal Reserve and Other Central Banks Around the World

The Tools and Goals of Central Bank Monetary Policy

The Commercial Banking Industry: Structure, Products, and Management

Nonbank Thrift Institutions: Savings and Loans, Savings Banks, Credit Unions, and Money Market Funds

Mutual Funds, Insurance Companies, Investment Banks, and Other Financial Firms

Regulation of the Financial Institutions Sector

Business Borrowing: Corporate Bonds, Asset-Backed Securities, Bank Loans, and Other Forms of Business Debt

The Market for Corporate

Consumer Lending and Borrowing

The Residential Mortgage Market Stock

International Transactions and Currency Values

International Banking

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