Deck 14: Deficit Spending and the Public Debt

Question 1

Which of the following is NOT an example of a flow variable?

A)planned investment
B)capital stock
C)The federal deficit
D)inventory investment

Answer 1

B

Question 2

When government revenues exceed government outlays in a particular year,this is called

A)a budget surplus.
B)a budget deficit.
C)the national debt.
D)fiscal policy.

Answer 2

A

Question 3

Other things being equal,during a period when the federal government issues more Treasury securities to borrow funds,

A)the flow of government expenditures during that period must exceed the flow of tax revenues.
B)the flow of government expenditures during that period must exceed the stock of tax collections.
C)the stock of government deficit spending during that period must exceed the flow of tax revenues.
D)the stock of government deficit spending during that period must exceed the stock of tax collections.

Answer 3

A

Question 4

The total value of all outstanding federal government securities is

A)a flow variable.
B)the budget deficit.
C)total personal wealth.
D)none of the above.

Question 5

Suppose that the government of Summerfield spends $2 trillion in 2013 and receives tax revenues of $1.5 trillion.Which of the following is true?

A)Summerfield has a budget surplus of $0.5 trillion.
B)Summerfield has a budget deficit of $0.5 trillion.
C)Summerfield has a trade deficit of $0.5 trillion.
D)Summerfield has a trade surplus of $0.5 trillion.

Question 6

A government balanced budget is

A)an excess of government spending over government revenues during a given time period.
B)a situation in which the government's spending is exactly equal to the total taxes and other revenues it collects during a given time period.
C)the total value of all outstanding federal government securities.
D)all federal government debt irrespective of who owns it.

Question 7

If the government spends more than it receives in taxes during a given interval,then the result is

A)a balanced budget.
B)the gross public debt.
C)the net public debt.
D)a government budget deficit.

Question 8

If the public debt increased by the same amount each year during the past three years,then

A)the U.S.government must have operated with the same budget surpluses during the past three years.
B)the U.S.government must have experienced budget surpluses that increased by the same amount each of the past three years.
C)the U.S.Treasury must have issued securities to fund a flow of government spending that exceeded a flow of tax revenues by the same amount during each of the past three years.
D)during each of the past three years,the U.S.Treasury must have bought back the same amount of securities that had previously been issued to cover deficits experienced more than three years ago.

Question 9

In the current year,a nation's government spending equals $1.5 trillion and its revenues are $1.9 trillion.Which of the following is true?

A)The nation's national debt equals $0.4 trillion.
B)This nation has a current year budget surplus of $0.4 trillion.
C)This nation is currently running a budget deficit of $0.4 trillion.
D)The nation has a current year trade surplus of $0.4 trillion.

Question 10

Stocks change ________ whereas flows relate to ________.

A)within a given period of time;changes between points in time
B)only at the end of each year;amounts at a given point in time
C)between points in time;changes within a given time period
D)and that causes flows to change;changes that have no impact on stocks

Question 11

How does a government budget deficit occur?

A)A government's tax revenues exceed its spending.
B)A government's spending exceeds its tax revenues.
C)If a nation carries a public debt,it must be running a deficit every year.
D)A nation earns more on exports than it spends on imports.

Question 12

If the government's spending exactly equals its revenues during a budget year,that government is

A)running a budget deficit.
B)experiencing a budget surplus.
C)balancing its budget.
D)paying off its public debt.

Question 13

If the government spends exactly what it receives in taxes during a given interval,then the result is

A)a balanced budget.
B)the gross public debt.
C)the net public debt.
D)a government budget deficit.

Question 14

A government budget deficit is

A)an excess of government spending over government revenues during a given time period.
B)a situation in which the government's spending is exactly equal to the total taxes and other revenues it collects during a given time period.
C)the total value of all outstanding federal government securities.
D)all federal government debt irrespective of who owns it.

Question 15

Which of the following is a stock variable?

A)public debt
B)wealth
C)money supply
D)all of the above

Question 16

How does the federal government finance a budget deficit?

A)It redeems its IOUs.
B)It purchases U.S.Treasury bonds.
C)It cuts spending on entitlement programs.
D)It borrows funds by selling Treasury bonds.

Question 17

If the government spends less than what it receives in taxes during a given interval,then the result is

A)a balanced budget.
B)an entitlement.
C)unrealized public debt.
D)a government budget surplus.

Question 18

Which of the following statements about the budget deficit is true?

A)It is a stock variable.
B)It is a flow variable.
C)It is equal to the public debt.
D)None of the above.

Question 19

When government spending exceeds government revenues during a given period of time,

A)a budget deficit exists.
B)a budget surplus exists.
C)the national debt must be decreasing.
D)Congress is obliged to raise taxes.

Question 20

A federal deficit of $300 billion means that

A)the government has a total debt of $300 billion.
B)government spending is $300 billion a year.
C)the government is spending $300 billion a year more than it is collecting in taxes.
D)the government plans on collecting $300 billion in taxes this year.

Question 21

A government budget surplus occurs during a budget year when

A)tax revenues > government spending.
B)tax revenues = government spending.
C)tax revenues < government spending.
D)tax revenues + government spending = personal income.

Question 22

If the government has a spending flow that exceeds the revenues it collects,the government will run a ________ that year.

A)debt
B)deficit
C)debt and a deficit
D)surplus

Question 23

A government budget deficit occurs during a budget year when

A)tax revenues > government spending.
B)tax revenues = government spending.
C)tax revenues < government spending.
D)tax revenues + government spending = personal consumption.

Question 24

The public debt is

A)an excess of government spending over government revenues during a given time period.
B)a situation in which the government's spending is exactly equal to the total taxes and other revenues it collects during a given time period.
C)the total value of all outstanding federal government securities.
D)all federal government debt irrespective of who owns it.

Question 25

When government spending is less than the tax revenues during a specific time period,this is known as a

A)government budget deficit.
B)government budget surplus.
C)balanced budget.
D)public debt.

Question 26

When government expenditures are greater than tax revenues

A)there will be budget deficit.
B)there will be budget surplus.
C)automatic stabilizers do not kick in.
D)the public debt will be reduced.

Question 27

Explain the differences between the public debt and the government budget deficit.

Question 28

A government budget surplus is

A)a situation in which the supply of goods in the economy is greater than the demand for goods.
B)a situation in which the amount spent by the government is greater than the amount collected in taxes.
C)the public debt.
D)an excess of revenues over government spending.

Question 29

Suppose that the federal government had a budget deficit of $80 billion in year 1 and $90 billion in year 2,but that it experiences budget surpluses of $40 billion in year 3 and $20 billion in year 4.Also assume that the government uses any budget surpluses to pay down the public debt.At the end of these four years,the Federal government's public debt would have

A)decreased by $110 billion.
B)increased by $230 billion.
C)increased by $110 billion.
D)decreased by $57.5 billion.

Question 30

The public debt can be thought of as

A)the total amount consumers owe on their credit cards.
B)the total amount in taxes consumers pay to the government.
C)accumulated budget deficits and surpluses.
D)the total amount the government spends for goods and services.

Question 31

When government spending exceeds tax revenues during a specific time period,this is known as a

A)government budget deficit.
B)government budget surplus.
C)balanced budget.
D)public debt.

Question 32

If the government has no debt initially,but then has annual revenues of $10 billion per year for 4 years and annual expenditures of $10.5 billion per year for 4 years,then the government has

A)a budget surplus of $0.5 billion per year and a debt of $2 billion at the end of the 4 years.
B)a budget deficit of $0.5 billion per year and a budget surplus of $2 billion at the end of the 4 years.
C)a budget deficit of $0.5 billion per year and a debt of $2 billion at the end of the 4 years.
D)a budget surplus of $0.5 billion per year and a surplus of $2 billion at the end of the 4 years.

Question 33

Which of the following will NOT cause the public debt to change?

A)Collection by the government of $200 billion more in taxes than it spends
B)Government budget deficit
C)Government budget surplus
D)Balanced budget

Question 34

When government spending is equal to the tax revenues during a specific time period,this is known as a

A)government budget deficit.
B)government budget surplus.
C)balanced budget.
D)public debt.

Question 35

Which of the following is true when a budget deficit exists?

A)Government expenditures exceed tax revenues.
B)Tax revenues exceed government expenditures.
C)A trade surplus exists.
D)Dissaving exists.

Question 36

Suppose that the federal government had a budget deficit of $80 billion in year 1 and $10 billion in year 2,but it had budget surpluses of $140 billion in year 3 and $20 billion in year 4.Also assume that the government uses any budget surpluses to pay down the public debt.At the end of these four years,the Federal government's public debt would have

A)decreased by $70 billion.
B)increased by $250 billion.
C)increased by $70 billion.
D)decreased by $62.5 billion.

Question 37

Public debt is held as

A)corporate bonds and common stocks of the largest companies.
B)Federal Reserve Notes.
C)U.S.Notes.
D)Treasury Bills,Treasury Notes,Treasury Bonds,and U.S.Savings Bonds.

Question 38

Which of the following statements about the public debt is true?

A)It is a stock variable.
B)It is equal to the budget deficit.
C)It decreases when the government runs a budget deficit..
D)All of the above.

Question 39

While the budget deficit represents a ________,the public debt represents a ________.

A)flow;flow
B)flow;stock
C)stock;stock
D)stock;flow

Question 40

Which of the following statements is true about the difference between the public debt and the government budget deficit?

A)The public debt always increases while the government budget deficit may increase or decrease.
B)The public debt for this year will increase or decrease depending upon whether there is a government budget deficit or a government budget surplus.
C)The public debt is a flow measure and the government budget deficit is not a flow measure.
D)There is no relationship between the public debt and the government budget deficit since one is a stock measure and the other is a flow measure.

Question 41

Other things being equal,what is the effect of deficit spending on credit markets?

A)Both the demand for credit and the supply of credit will increase.
B)Both the demand for credit and the supply of credit will decrease.
C)The demand for credit increases while the supply of credit remains constant.
D)The supply of credit will increase while the demand for credit remains the same.

Question 42

When was the last year the United States had a budget surplus?

A)2009
B)1984
C)1993
D)2001

Question 43

Since 1940,the U.S.government has experienced

A)about the same number of years with budget deficits as with budget surpluses.
B)twice as many annual budget surpluses as annual budget deficits.
C)only one year with a budget surplus.
D)many more budget deficits than budget surpluses.

Question 44

According to the text,approximately what percentage of U.S.net public debt is held by foreign residents?

A)20%
B)50%
C)800%
D)90%

Question 45

If the government borrows to purchase goods and services,today's consumption of government goods and services will be paid for by

A)today's taxpayers.
B)government employees.
C)future taxpayers.
D)today's taxpayers and tomorrow's taxpayers in even shares.

Question 46

Ceteris paribus,deficit spending results in higher interest rates,which can

A)accelerate growth in investment spending.
B)ultimately have a positive impact on productivity gains and society's standard of living.
C)increase the wealth of future generations.
D)crowd out private investment.

Question 47

All of the following are possible explanations for the increase in U.S.government budget deficits as a percentage of GDP since the early 2001 EXCEPT

A)increases in tax revenues.
B)increases in payments for entitlements.
C)increases in government spending.
D)decreases in tax rates.

Question 48

Gross public debt is

A)an excess of government spending over government revenues during a given time period.
B)a situation in which the government's spending is exactly equal to the total taxes and other revenues it collects during a given time period.
C)the total value of budget deficits plus budget surpluses over the past five years.
D)all federal government debt irrespective of who owns it.

Question 49

Since the late 1980s,the share of the net public debt owed to foreign interests has

A)remained constant.
B)decreased.
C)increased.
D)gone up and then down,finally settling at around 10 percent.

Question 50

According to the text,the net public debt to Gross Domestic Product (GDP)ratio is currently about

A)10%.
B)25%.
C)60%.
D)120%.

Question 51

The difference between net public debt and gross public debt is

A)all government interagency borrowing.
B)the interest paid annually on the public debt.
C)the amount owed to individuals and firms outside the United States.
D)the current year's budget deficit from the amount of public debt at the start of the year.

Question 52

Net public debt is the

A)difference between tax revenues and government expenditures each year.
B)sum of accumulated government deficits and surpluses held by individuals and businesses and foreign institutions.
C)sum of accumulated government deficits and surpluses held by U.S.government agencies.
D)sum of accumulated government deficits and surpluses held by large money center banks.

Question 53

Expressing the U.S.federal budget deficit as a percentage of Gross Domestic Product (GDP)

A)results in inflation-adjusted revenue and expenditure numbers.
B)helps us understand the size of the deficit relative to the size of the economy.
C)was useful through the 1980s,but is no longer helpful because both the deficit and real Gross Domestic Product (GDP)have grown so large.
D)is only useful if the budget deficit is rising at an annual rate of more than 4 percent.

Question 54

The amount of funds the Social Security system has loaned the federal government is

A)included in the net public debt.
B)added to the gross public debt to calculate the net public debt.
C)not included in the gross public debt.
D)excluded from the net public debt.

Question 55

What is true about government budget deficits and surpluses since 1940?

A)Balanced budgets have been more common than government budget deficits or government budget surpluses.
B)There have been more government budget surpluses than government budget deficits.
C)There have been more government budget deficits than government budget surpluses.
D)The number of government budget deficits is about the same as the number of government budget surpluses.

Question 56

The total value of all outstanding federal government securities is called

A)the budget deficit.
B)the public debt.
C)the trade deficit.
D)crowding out.

Question 57

The difference between the gross public debt and the net public debt is

A)the sum of all previously accumulated government budget deficits and surpluses.
B)the sum of all previously issued U.S.government securities that have been purchased by foreign residents.
C)all private-sector borrowing from private sources.
D)all government interagency borrowing.

Question 58

Between the years 1998 and 2001,the U.S.government experienced

A)budget surpluses.
B)balanced budgets.
C)budget deficits.
D)contractionary budget cycles.

Question 59

Since 2001,the U.S.government budget deficit

A)has been approximately equal to 10% of U.S.GDP.
B)as a percentage of U.S.GDP has increased steadily each year.
C)as a percentage of U.S.GDP has decreased steadily each year.
D)none of the above.

Question 60

Other things being equal,what is the effect of deficit spending on interest rates?

A)Interest rates decline.
B)Interest rates rise.
C)Interest rates hold constant because the demand for credit decreases.
D)There is no impact unless the Federal Reserve decides to alter the money supply.

Question 61

Some economists believe that financing deficit spending by increasing taxes will lead to a lower level of national consumption and a higher level of national savings than deficit spending.The reason is

A)people believe that they can consume the government provided goods and have future generations pay the bill.
B)that people do not realize that taxes have increased also.
C)people will forgo private consumption now as society substitutes government goods for private goods.
D)the interest rate on the debt will increase.

Question 62

Some economists believe that deficit spending can impose a burden on future generations.Which of the following does NOT explain the burden?

A)Investment will be crowded out by an increase in current consumption.
B)Deficit spending that is allocated to purchases leads to long-term increases in real GDP.
C)Future generations will have a smaller capital stock that will reduce their wealth.
D)Future generations will have to be taxed at a higher rate.

Question 63

Suppose that initially there is no public debt.Using the above table,the public debt over this four year period would have

A)increased by $215.
B)decreased by $100.
C)increased by $1,375.
D)decreased by $1,590.

Question 64

The share of net public debt owed to foreign residents today is close to

A)100 percent.
B)80 percent.
C)50 percent.
D)10 percent.

Question 65

The difference between the gross public debt and the net public debt is that the

A)gross public debt includes entitlements while the net public debt does not.
B)gross public debt is based on budget deficit while the net public debt is not based on budget deficits.
C)gross public debt includes government interagency borrowing while the net public debt does not.
D)the gross public debt is expressed as a percentage of GDP while the net public debt is not.

Question 66

An increase in the public debt would most likely indicate that

A)the budget deficit has increased.
B)the budget deficit has decreased.
C)the trade deficit has decreased.
D)national saving has increased.

Question 67

Net public debt is

A)all federal public debt irrespective of who owns it.
B)gross public debt minus all government interagency borrowing.
C)all public debt minus all money owed on the federal income tax.
D)all public debt plus all government interagency borrowing.

Question 68

Gross public debt minus all government interagency borrowing is

A)government budget deficit.
B)net public debt.
C)U.S.Treasury bonds.
D)an entitlement.

Question 69

Which of the following statements is true about the public debt and future generations?

A)Future generations will always be worse off because they will have to pay off the public debt.
B)Increased consumption today will lead to increases in the capital stock in the future.
C)Future generations may be better off if the rate of return on the borrowed funds is higher than the interest rate paid to foreign residents.
D)The public debt cannot be held by foreign residents therefore we really owe the debt to ourselves.

Question 70

Media reports often suggest that the increasing public debt is a burden on future generations.What they mean is that

A)it reduces the current level of investment.
B)it makes predicting future unemployment levels unpredictable.
C)it causes deflation.
D)it reduces both nominal and real interest rates.

Question 71

Suppose that initially there is no public debt.Using the above table,what is the public debt as a percentage of GDP in Year 3?

A)1.7 percent
B)2.0 percent
C)7.7 percent
D)5.9 percent

Question 72

If the net public debt expanded last year,then which of the following most likely occurred during the year?

A)The government's budget was balanced.
B)The government experienced a budget surplus.
C)The government experienced a budget deficit.
D)The government's tax collections exceeded its spending.

Question 73

If no foreign residents owned any of the U.S.public debt,then it would be true that

A)there would be no distributional consequences associates with he public debt.
B)U.S.residents would essentially owe the public debt to themselves.
C)there would be no interest payments on the public debt.
D)the public debt would naturally disappear over time.

Question 74

Assume the economy is closed and that it is operating at full employment.Which statement is true when the size of the budget deficit decreases?

A)The interest rate will decrease,leading to an increase in investment and capital formation.
B)Demand and supply of credit will increase.
C)A reduction in the growth of productivity,and a reduction in society's standard of living will occur.
D)The increased amount of public goods will crowd out privately produced goods.

Question 75

Which of the following is the best statement about how the amount of the net public debt that a typical individual owes to the holders of the debt has varied in the recent past?

A)The amount has not varied much over time.
B)The amount has varied a lot over time.
C)The amount has steadily increased over time.
D)The amount has steadily decreased over time.

Question 76

The gross public debt is the

A)amount of U.S.paper currency and coins in circulation.
B)difference between current government expenditures and tax revenues.
C)ratio of past deficits to past surpluses.
D)total of all accumulated deficits and surpluses.

Question 77

One mechanism through which increasing public debt may impact the economy is that the resulting

A)increased competition for funds increases interest rates and causes a reduction in investment.
B)increased competition for funds decreases interest rates and causes an increase in investment.
C)decreased competition for funds decreases interest rates and causes a reduction in investment.
D)decreased competition for funds decreases interest rates and causes an increase in investment.

Question 78

Suppose that initially there is no public debt.Using the above table,what is the public debt as a percentage of GDP in Year 4?

A)5.8 percent
B)7.8 percent
C)3.6 percent
D)2.0 percent

Question 79

The difference between gross public debt and net public debt is that

A)net public debt includes interagency borrowing while the gross domestic product debt does not.
B)net public debt is expressed in real terms while gross public debt is expressed in nominal terms.
C)gross public debt includes interagency borrowing while net public debt does not.
D)gross public debt is held by individuals while net public debt is held by the government.

Question 80

When the Social Security Administration holds U.S.Treasury Bonds

A)interagency borrowing has occurred and the government owes itself.
B)there is a balanced budget.
C)an entitlement has occurred.
D)the gross public debt has increased.