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

Question 1

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.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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.

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

Answer 3

$20,000

Question 4

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

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

Question 5

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

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

Question 6

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

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

Question 7

What exactly is fiscal policy? Debt management policy?

Question 8

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?

Question 9

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

Question 10

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?

Question 11

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?

Question 12

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

Question 13

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?

Question 14

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.

Question 15

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.

Question 16

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.

Question 17

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.

Question 18

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