Deck 20: The national debt

Question 1

From 2000 to 2009, average U.S.federal government outlays on national defense totaled

A)1)2 percent of GDP
B)2)4 percent of GDP
C)3)8 percent of GDP
D)4)9 percent of GDP
E)6)9 percent of GDP

Answer 1

3)8 percent of GDP

Question 2

In which year did the amount of U.S.federal debt as a percentage of GNP that was held by the public reach its highest level?

A)1866
B)1929
C)1949
D)1981
E)2010

Answer 2

1949

Question 3

If we compare the sources of U.S.federal revenue as a percentage of GDP from 1960-69 and from 2000-09, we see that on average

A)individual income tax revenue was lower in 2000-09
B)corporate income tax revenue was higher in 2000-09
C)corporate income tax revenue was roughly the same in both periods
D)social insurance taxes were lower in 2000-09
E)none of the above

Answer 3

none of the above

Question 4

Why is so much of the U.S.federal debt owned by foreigners?

A)U)S. government bonds tend to pay higher yields than the securities of other governments
B)U)S. domestic savings are insufficient to support the national debt
C)it is difficult for international investors to cash in their U.S. government bonds
D)international investors believe that the U.S. dollar will never lose any of its value
E)none of the above

Question 5

In the period of 2000-2009, the largest source of total federal government revenue in the U.S.was

A)social insurance taxes
B)corporate income taxes
C)individual income taxes
D)sales taxes
E)sales of government assets

Question 6

In 2013, the gross national debt in the U.S.was approximately

A)$1.1 trillion
B)$3.3 trillion
C)$12.1 trillion
D)$16.4 trillion
E)$19.6 trillion

Question 7

In the period of 2000-2009, the largest share of total federal government outlays in the U.S.was devoted to

A)national defense
B)entitlement programs and other mandatory spending
C)non-defense discretionary spending
D)net interest payments on the national debt
E)foreign aid

Question 8

Which of the following statements is TRUE?

A)the debt-to-GDP ratio can never exceed 100 percent
B)if GDP and the national debt both increase, then the debt-to-GDP ratio cannot change
C)whenever the budget deficit increases, the debt-to-GDP ratio also increases
D)the debt-to-GDP ratio will always decrease as long as GDP is growing
E)none of the above

Question 9

From 2000 to 2009, average federal government outlays on net interest on the national debt totaled

A)0)2 percent of GDP
B)0)9 percent of GDP
C)1)2 percent of GDP
D)1)7 percent of GDP
E)2)5 percent of GDP

Question 10

In 2011, what portion of the U.S.public debt was owned by international investors?

A)66 percent
B)46 percent
C)36 percent
D)16 percent
E)6 percent

Question 11

Between 2000 and 2009, total U.S.federal revenues were on average

A)16.2 percent of GDP
B)15.6 percent of GDP
C)17.6 percent of GDP
D)18.8 percent of GDP
E)20.4 percent of GDP

Question 12

The debt-to-GDP ratio will always decrease if

A)the economy enters a boom
B)the government implements sharp spending cuts
C)government tax revenues as a share of GDP do not decrease
D)the primary deficit grows at the same rate as GDP
E)none of the above

Question 13

In 2011, what portion of the U.S.public debt was owned by the Federal Reserve?

A)2 percent
B) 6 percent
C)12 percent
D)16 percent
E)22 percent

Question 14

From 1962-69, defense spending was, on average, about 8.7 percent of GDP but by 2000-09 this average percentage had changed to

A)12.8 percent of GDP
B)10.2 percent of GDP
C)5)6 percent of GDP
D)4)9 percent of GDP
E)3)8 percent of GDP

Question 15

Between 2000 and 2009, total U.S.government outlays were on average

A)12 percent of GDP
B)14 percent of GDP
C)18 percent of GDP
D)20 percent of GDP
E)25 percent of GDP

Question 16

Which of the following is FALSE for the U.S.national debt held by the public as a portion of GNP?

A)it declined in the 1920s but increased in the 1930s
B)it was at its highest in the late 1940s
C)it declined significantly from 1950 to 1970
D)it increased steadily from 1995 to 2012
E)it increased significantly from 2008 - 2012

Question 17

In 2011, who owned the largest portion of the U.S.public debt?

A)private domestic investors
B)international investors
C)state and local governments
D)the Federal Reserve
E)the Social Security administration

Question 18

From 1960 to 2010, the share of total government spending in GDP

A)remained fairly stable
B)increased from about 15 percent to about 25 percent
C)increased from about 23 percent to about 35 percent
D)18.8 percent of GDP
E)20.4 percent of GDP

Question 19

In 2012, how much of the gross U.S.national debt was held by the public?

A)32 percent
B)46 percent
C)58 percent
D)77 percent
E)92 percent

Question 20

If we compare the U.S.federal government outlays as a percentage of GDP from 1960-69 to and from 2000-09, we see that on average

A)national defense spending was higher in 2000-09
B)mandatory spending was lower in 2000-09
C)non-defense discretionary spending was roughly the same in both periods
D)net interest payments on the debt was more than twice as high in 2000-09
E)total outlays increased from 14% in the earlier period to more than 30% in the later period

Question 21

If we look at interest payments on the U.S.national debt as a fraction of GDP since World War II, we realize that they

A)increased slightly but consistently as the national debt increased in size
B)increased from less than 2% 1980 to more than 3% in 1990
C)were higher between 2000 - 2010 than in any previous decade
D)always exceeded 2%
E)never exceeded 2%

Question 22

Between 1945 and 2010, the average interest rate on the U.S.national debt

A)increased slightly but consistently
B)decreased consistently despite an increasing national debt
C)followed roughly the same pattern as the debt-to-GDP ratio
D)peaked in the early 1980s
E)never exceeded 6 percent

Question 23

The greatest burden of an increasing national debt generally is that

A)it will eventually have to be money-financed which will cause inflation to increase
B)citizens will have to be taxed more to pay the interest on government securities
C)the government will have to print more money to pay off the debt
D)future living standards will be lower since the rise in interest rates caused by the increased government demand for credit will crowd out private investment
E)people will lower their current consumption in anticipation of future tax increases

Question 24

If we compare spending as a percentage of GDP by local and state governments and by the federal government from 1960 to 2010, we realize that

A)federal government spending was more volatile than local and state government spending
B) local and state government spending was more volatile than federal government spending
C)total spending by local and state governments exceeded federal government spending over the fifty year period
D)federal government spending was at least three times as much as spending by local and state governments over the fifty year period
E)spending by local and state governments followed the pattern of total government spending more closely than federal government spending did

Question 25

Even though the national debt is rising, the debt-to-GDP ratio will fall as long as

A)interest payments on the national debt as a fraction of government spending remain constant
B)the real interest rate exceeds the economic growth rate and the primary budget is balanced
C)the real interest rate is lower than the economic growth rate and the primary deficit is zero
D)the debt is growing more slowly than the federal budget deficit
E)the primary budget deficit as a share of GDP is not growing

Question 26

Interest payments on the U.S.national debt as a fraction of all federal government spending

A)reached an all time high in 1945, then decreased continuously until 2008 when it started to increase again
B)has always been fairly low and has never exceeded 6 percent
C)exceeded 10 percent in the late 1940s but then remained much lower until the 1980s when it increased again until it exceeded 10 percent throughout the 1990s
D)decreased sharply from the levels it reached in the 1940s but then increased steadily from 2000 to 2013
E)none of the above

Question 27

If we compare the debt-to-GDP ratios of the U.S.and Canada, we see that

A)in 2010 the ratio was much higher in the U.S. than in Canada
B)the ratio increased sharply in the 1980s in both countries
C)the ratio decreased steadily from 1996 to 2000 in both countries
D)the ratio increased during the Great Recession in both countries
E)all of the above

Question 28

What contributed to the recent debt crises in several European countries?

A)many loans made by banks before the crises were unlikely to be paid back
B)these countries had very high debt-to-GDP ratios
C)Germany, which often serves as the locomotive for European growth, encountered a long and severe recession
D)all of the above
E)only A)and B)

Question 29

Which of the following is TRUE?

A)the average nominal interest rate on the debt was higher in 1980 than in 2010
B)the real interest rate was higher in 1980 than in 2010
C)real interest payments as a percentage of government spending were higher in 1980 than in 2010
D)nominal interest payments as a percentage of government spending were lower in 1980 than in 2010
E)none of the above

Question 30

In 2013, the debt-to-GDP ratio in the U.S.was approximately

A)35%
B)50%
C)64%
D)75%
E)107%

Question 31

Which of the following is FALSE?

A)the estimated cost of unfunded liabilities is about 20 times the size of the current national debt
B)promises to pay Social Security benefits for future retirees are not counted in the national debt
C)the shortfall between future social insurance tax revenues and future payments to Social Security and Medicare is accounted for in the national debt
D)the size of the national debt would be lower if one counted government asset holdings
E)all of the above

Question 32

Which of the following happened in response to the Great Recession of 2007-09?

A)the U.S. government increased spending and cut taxes
B)the U.S. government increased spending but did not cut taxes
C)many European governments cut spending and raised taxes
D)many European governments increased spending and cut taxes
E)both A)and C)

Question 33

The primary deficit is equal to

A)the total deficit minus interest payments on the government debt
B)the total government deficit minus all outstanding government securities held by foreign financial investors
C)all government revenues minus all government outlays including interest payments on the national debt
D)the federal government's deficit minus the deficit of state and local governments
E)mandatory government outlays minus discretionary government outlays

Question 34

An increase in the national debt creates a burden on future generations because

A)the government will have to sell off its assets to pay off the debt
B)future tax rates will have to be increased to pay off domestic government bondholders
C)the Fed will have to monetize the debt, which will lead to higher interest rates
D)the capital stock will be lower than it would have been without the debt increase
E)interest payments on the national debt will increase the primary deficit even further

Question 35

Most debt issues by the Treasury are made to

A)refinance parts of the national debt that are maturing
B)finance entitlement programs
C)finance defense spending
D)provide more liquidity for financial markets
E)monetize the debt

Question 36

Which of the following is TRUE for the U.S.national debt held by the public as a portion of GNP?

A)it reached an all-time high in 2009
B)it increased steadily from 1960 to 2013
C)it was roughly 66 percent in 2013
D)it approximately doubled first from 1980 to 1992 and again from 2000 to 2010, but declined throughout most of the 1990s
E)it declined steadily from 1990 to 2008 but then increased again sharply

Question 37

A country is likely to be faced with a debt crisis when

A)its debt-to-GDP ratio goes above 60 percent
B)its debt-to-GDP ratio goes above 100 percent
C)the interest rate on its debt reaches double digits
D)its creditors believe that there is little chance that they will be paid back
E)its government fails to implement austerity measures in times of high deficits

Question 38

When the U.S.Treasury engages in debt financing,

A)it borrows directly from the Federal Reserve
B)it sells some of its assets, such as federally owned land
C)it sells securities to the public
D)short-term interest rates automatically decrease
E)taxes have to be increased

Question 39

The Treasury can retire part of the national debt only when

A)it can convince the Fed to buy government securities from the public
B)it can issue new securities to replace the ones that are maturing
C)federal government tax revenues exceed outlays
D)the structural component of the budget surplus is positive
E)the economy is at the full-employment level of output

Question 40

Many European countries chose to employ austerity measures during the Great Recession despite the fact that

A)this would actually increase budget deficits due to lower tax revenues
B)this would boost their own economies at the expense of their trade partners
C)exchange rates would have to be adjusted
D)this would make their debt crisis worse
E)economic activity would be reduced leading to increased hardship for much of its population

Question 41

Between 2009 and 2011, long-term interest rates in Greece went from 5.2 percent to

A)20.8 percent
B)15.7 percent
C)12.8 percent
D)9)7 percent
E)6)6 percent

Question 42

Which of the following countries had the HIGHEST debt-to-GDP ratio in 2010

A)Greece
B)Ireland
C)Italy
D)Portugal
E)Spain

Question 43

For most of the time after World War II, interest payments on the national debt were around 1.5 percent of GDP.However, in the 1980s and 1990s, they increased to around

A)1)8 percent of GDP
B)2)2 percent of GDP
C)3)0 percent of GDP
D)4)8 percent of GDP
E)5)2 percent of GDP

Question 44

Which of the following countries had the LOWEST debt-to-GDP ratio in 2010?

A)Greece
B)Ireland
C)Italy
D)Portugal
E)Spain

Question 45

Which of the following countries did NOT experience an increase in long-term interest rates from 2008 to 2010?

A)Denmark
B)Ireland
C)Italy
D)Portugal
E)Spain

Question 46

How large was Greece's debt-to-GDP ratio in 2010?

A)86%
B)107%
C)129%
D)169%
E)208%

Question 47

Which of the following is FALSE about long-term interest rates in Europe?

A)they decreased in most countries in the mid and late 1990s
B)they were similar in many countries from 2001-06
C)they increased sharply in all countries after 2006
D)they increased for some but not all countries after 2009
E)all of the above

Question 48

At the end of World War II, the U.S.debt-to-GDP ratio was much higher than it was in 2013 but there was no talk of a "fiscal cliff." This was because

A)there was no legal debt ceiling in the U.S. in the 1940s
B)it was assumed that the anticipated reduction in budget deficits combined with economic growth would reduce the ratio quickly
C)financial investors believed in the ability of the U.S. government to eventually pay off its creditors
D)all of the above
E)none of the above

Question 49

Which of the following is FALSE about the Canadian debt-to-GDP ratio?

A)it remained under 50 percent from 1970 to 1983
B)it reached a peak of over 80 percent in 1996
C)it reached a peak of 75 percent in 2010
D)it decreased sharply from 1997 to 2007
E)it increased from 2008 to 2010

Question 50

What was primarily responsible for the most recent debt crisis in Spain?

A)the Spanish government had borrowed too much, so its debt-to-GDP ratio was very high
B)the Spanish government cut spending in an effort to free funds for private investments
C)political instability
D)Spanish banks held too many unsound mortgage loans and mortgage-backed securities
E)all of the above