Question 1

In recent years, net interest on the national debt paid by the federal government as a percentage of GDP is equal to approximately:

Accepted Answer

A) 1 to 3 percent. 
B) 5 to 9 percent. 
C) 10 to 14 percent. 
D) 15 to 19 percent. 
E) 20-25 percent. 
A) 1 to 3 percent. 
B) 5 to 9 percent. 
C) 10 to 14 percent. 
D) 15 to 19 percent. 
E) 20-25 percent. A

Question 2

An increase in fiscal deficit spending financed by borrowing will not affect the national debt but decrease interest rates.

Accepted Answer

A) True 
 B)False  False

Question 3

Supply-side economists argue that less government spending:

Accepted Answer

A) will contract the productive side of the economy. 
B) will result in more crowding out. 
C) causes higher rates of unemployment and inflation. 
D) would cause interest rates to increase dramatically. 
E) would make more investment capital available at lower rates of interest to the private sector. 
A) will contract the productive side of the economy. 
B) will result in more crowding out. 
C) causes higher rates of unemployment and inflation. 
D) would cause interest rates to increase dramatically. 
E) would make more investment capital available at lower rates of interest to the private sector. E

Question 4

What is the difference between the federal budget deficit and the national debt?

Accepted Answer

A) The budget deficit is the amount by which expenditures exceed revenues in a particular year, while the national debt is the cumulative effect of all past budget deficits and surpluses. 
B) The budget deficit is the cumulative effect of all prior national debts. 
C) The national debt includes all outstanding bonds, while the budget deficit excludes bonds held by government agencies. 
D) This is a trick question because there is no difference between the budget deficit and the national debt. 
A) The budget deficit is the amount by which expenditures exceed revenues in a particular year, while the national debt is the cumulative effect of all past budget deficits and surpluses. 
B) The budget deficit is the cumulative effect of all prior national debts. 
C) The national debt includes all outstanding bonds, while the budget deficit excludes bonds held by government agencies. 
D) This is a trick question because there is no difference between the budget deficit and the national debt.

Question 5

Does government borrowing crowd out private sector spending?

Accepted Answer

Crowding out refers to government defici

Question 6

Which of the following statements about crowding out is true ?

Accepted Answer

A) It can completely offset the multiplier. 
B) It is caused by a budget deficit. 
C) It is not caused by a budget surplus. 
D) All of these are true. 
A) It can completely offset the multiplier. 
B) It is caused by a budget deficit. 
C) It is not caused by a budget surplus. 
D) All of these are true.

Question 7

To finance a federal budget deficit, the U.S. Treasury borrows by selling:

Accepted Answer

A) Treasury bills. 
B) Treasury notes. 
C) Treasury bonds. 
D) All of these. 
A) Treasury bills. 
B) Treasury notes. 
C) Treasury bonds. 
D) All of these.

Question 8

An increase in a budget deficit financed by borrowing can increase interest rates and reduce investment spending thereby creating lower rates of economic growth.

Accepted Answer

A) True 
 B)False

Question 9

As the size of a nation's outstanding debt gets larger and larger relative to the size of the economy:

Accepted Answer

A) eventually it will become difficult for the country to borrow in global credit markets. 
B) the country will have to pay higher real interest rates in order to induce investors to purchase its bonds. 
C) at some point, the country will be more or less forced to bring spending into line with revenues in order to maintain the confidence of investors. 
D) all of these are correct. 
A) eventually it will become difficult for the country to borrow in global credit markets. 
B) the country will have to pay higher real interest rates in order to induce investors to purchase its bonds. 
C) at some point, the country will be more or less forced to bring spending into line with revenues in order to maintain the confidence of investors. 
D) all of these are correct.

Question 10

The debt ceiling places a legal limit on the size of the national debt.

Accepted Answer

A) True 
 B)False

Question 11

Crowding out refers to the situation in which:

Accepted Answer

A) borrowing by the federal government raises interest rates and causes firms to invest less. 
B) foreigners sell their bonds and purchase U.S. goods and services. 
C) borrowing by the federal government causes state and local governments to lower their taxes. 
D) increased federal taxes to balance the budget causes interest rates to increase and consumer credit decreases. 
A) borrowing by the federal government raises interest rates and causes firms to invest less. 
B) foreigners sell their bonds and purchase U.S. goods and services. 
C) borrowing by the federal government causes state and local governments to lower their taxes. 
D) increased federal taxes to balance the budget causes interest rates to increase and consumer credit decreases.

Question 12

The crowding-out effect indicates that an increase in a fiscal deficit financed by borrowing will increase interest rates and thereby crowd out some domestic investment spending.

Accepted Answer

A) True 
 B)False

Question 13

The federal budget deficit has been over 30 percent of GDP since the early 1980s.

Accepted Answer

A) True 
 B)False

Question 14

Are we passing the national debt burden on to our children?

Accepted Answer

One side of this argument is that the de

Question 15

The sum of past federal budget deficits increases the:

Accepted Answer

A) GDP debt. 
B) trade debt plus debt. 
C) national debt. 
D) Congressional debt. 
A) GDP debt. 
B) trade debt plus debt. 
C) national debt. 
D) Congressional debt.

Question 16

When we speak of the national debt, we refer to the federal government debt only.

Accepted Answer

A) True 
 B)False

Question 17

A concern about crowding out caused by increased government borrowing is that:

Accepted Answer

A) interest rates on private borrowing fall. 
B) lower rates of economic growth can result from a decline in business investment spending. 
C) the federal government may default on its loans. 
D) foreign lenders find it less attractive to help finance federal deficits. 
A) interest rates on private borrowing fall. 
B) lower rates of economic growth can result from a decline in business investment spending. 
C) the federal government may default on its loans. 
D) foreign lenders find it less attractive to help finance federal deficits.

Question 18

External debt is that portion of the national debt:

Accepted Answer

A) held by private investors. 
B) held by the Federal Reserve. 
C) that the United States does not intend to repay. 
D) held by foreigners. 
A) held by private investors. 
B) held by the Federal Reserve. 
C) that the United States does not intend to repay. 
D) held by foreigners.

Question 19

Currently, the national debt is approximately:

Accepted Answer

A) 10 percent of GDP. 
B) 60 percent of GDP. 
C) 80 percent of GDP. 
D) 120 percent of GDP. 
A) 10 percent of GDP. 
B) 60 percent of GDP. 
C) 80 percent of GDP. 
D) 120 percent of GDP.

Question 20

Critics of Keynesian fiscal policy argue that deficit spending will not stimulate the economy, because higher interest rates will discourage consumption and investment. This argument is known as the:

Accepted Answer

A) deficit-substitution effect. 
B) multiplier effect. 
C) burden-of-debt effect. 
D) crowding-out effect. 
A) deficit-substitution effect. 
B) multiplier effect. 
C) burden-of-debt effect. 
D) crowding-out effect.

Exam 13: Federal Deficits, Surpluses, and the National Debt

In recent years, net interest on the national debt paid by the federal government as a percentage of GDP is equal to approximately:

An increase in fiscal deficit spending financed by borrowing will not affect the national debt but decrease interest rates.

Supply-side economists argue that less government spending:

What is the difference between the federal budget deficit and the national debt?

Does government borrowing crowd out private sector spending?

Which of the following statements about crowding out is true ?

To finance a federal budget deficit, the U.S. Treasury borrows by selling:

An increase in a budget deficit financed by borrowing can increase interest rates and reduce investment spending thereby creating lower rates of economic growth.

As the size of a nation's outstanding debt gets larger and larger relative to the size of the economy:

The debt ceiling places a legal limit on the size of the national debt.

Crowding out refers to the situation in which:

The crowding-out effect indicates that an increase in a fiscal deficit financed by borrowing will increase interest rates and thereby crowd out some domestic investment spending.

The federal budget deficit has been over 30 percent of GDP since the early 1980s.

Are we passing the national debt burden on to our children?

The sum of past federal budget deficits increases the:

When we speak of the national debt, we refer to the federal government debt only.

A concern about crowding out caused by increased government borrowing is that:

External debt is that portion of the national debt:

Currently, the national debt is approximately:

Critics of Keynesian fiscal policy argue that deficit spending will not stimulate the economy, because higher interest rates will discourage consumption and investment. This argument is known as the:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters