Question 1

"Crowding out" is the theory that an increase in our federal government's budget deficit will likely:

Accepted Answer

A)  decrease the national debt. 
B)  decrease interest rates. 
C)  decrease borrowing by households and businesses 
D)  increase the impact of the spending multiplier. 
A)  decrease the national debt. 
B)  decrease interest rates. 
C)  decrease borrowing by households and businesses 
D)  increase the impact of the spending multiplier.

Question 2

Can the U.S. federal government go broke as a result of a large national debt?

Accepted Answer

The U.S. government cannot go broke beca

Question 3

If the federal government runs a budget deficit, but the budget deficit as a percent of GDP is less than the growth rate of real output, the:

Accepted Answer

A)  national debt will decrease as a share of GDP. 
B)  national debt will remain a constant share of GDP. 
C)  national debt will increase as a share of GDP. 
D)  size of the national debt (in dollar value) will decline. 
A)  national debt will decrease as a share of GDP. 
B)  national debt will remain a constant share of GDP. 
C)  national debt will increase as a share of GDP. 
D)  size of the national debt (in dollar value) will decline.

Question 4

Currently, the national debt is approximately:

Accepted Answer

A)  10 percent of GDP. 
B)  60 percent of GDP. 
C)  105 percent of GDP. 
D)  120 percent of GDP. 
A)  10 percent of GDP. 
B)  60 percent of GDP. 
C)  105 percent of GDP. 
D)  120 percent of GDP.

Question 5

Supply-side economists argue that less government spending:

Accepted Answer

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

Question 6

Which of the following portions of the national debt impose a net interest burden on the federal government?

Accepted Answer

A)  treasury bonds held by government agencies 
B)  treasury bonds held by private investors 
C)  treasury bonds held by the Federal Reserve system 
D)  treasury bonds held in the Social Security Trust Fund 
A)  treasury bonds held by government agencies 
B)  treasury bonds held by private investors 
C)  treasury bonds held by the Federal Reserve system 
D)  treasury bonds held in the Social Security Trust Fund

Question 7

If the federal government were to run a budget deficit, this would:

Accepted Answer

A)  increase the size of the national debt. 
B)  reduce the size of the national debt. 
C)  leave the size of the national debt unchanged. 
D)  increase the national debt only if the government also expands the supply of money. 
A)  increase the size of the national debt. 
B)  reduce the size of the national debt. 
C)  leave the size of the national debt unchanged. 
D)  increase the national debt only if the government also expands the supply of money.

Question 8

If the national debt rises to the debt ceiling and there is currently a budget ________, the Congress and the President must agree to ________ the debt ceiling or else the federal government will have insufficient funds to pay its bills and will be forced to shut down.

Accepted Answer

A)  surplus, lower 
B)  deficit, raise 
C)  surplus, raise 
D)  deficit, lower 
A)  surplus, lower 
B)  deficit, raise 
C)  surplus, raise 
D)  deficit, lower

Question 9

Most of the U.S. national debt is owed to ____. Thus a rising national debt implies that there will be a future redistribution of income and wealth in favor of ____.

Accepted Answer

A)  foreigners; foreigners 
B)  other U.S. citizens; bondholders 
C)  foreigners; those needing government services 
D)  other U.S. citizens; those needing government services 
A)  foreigners; foreigners 
B)  other U.S. citizens; bondholders 
C)  foreigners; those needing government services 
D)  other U.S. citizens; those needing government services

Question 10

Which of the following is a valid concern about federal budget deficits?

Accepted Answer

A)  The welfare of future generations will be directly related to the per-capita size of the national debt that they inherit. 
B)  Growth of the national debt will eventually lead to the bankruptcy of the government. 
C)  When the debt comes due, future generations may be unable to pay it off. 
D)  If the increases in the national debt reduce private expenditures on capital formation, aggregate demand is reduced. 
A)  The welfare of future generations will be directly related to the per-capita size of the national debt that they inherit. 
B)  Growth of the national debt will eventually lead to the bankruptcy of the government. 
C)  When the debt comes due, future generations may be unable to pay it off. 
D)  If the increases in the national debt reduce private expenditures on capital formation, aggregate demand is reduced.

Question 11

"Crowding out" refers to federal government deficits financed by:

Accepted Answer

A)  borrowing which increases interest rates and thereby reduces private spending. 
B)  increasing taxes which reduces private spending. 
C)  the federal government buying foreign debt which reduces the amount of government spending and government programs. 
D)  reducing government spending which reduces interest rates. 
A)  borrowing which increases interest rates and thereby reduces private spending. 
B)  increasing taxes which reduces private spending. 
C)  the federal government buying foreign debt which reduces the amount of government spending and government programs. 
D)  reducing government spending which reduces interest rates.

Question 12

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

Question 13

One concern over external national debt is that interest and principal payments transfer wealth overseas. The percentage of the national debt held in recent years by foreigners is approximately:

Accepted Answer

A)  10 percent. 
B)  20 percent. 
C)  30 percent. 
D)  50 percent. 
A)  10 percent. 
B)  20 percent. 
C)  30 percent. 
D)  50 percent.

Question 14

Supply-siders argue that:

Accepted Answer

A)  reductions in government spending cut infrastructure investment which hurts private sector investment. 
B)  increases in government spending increase infrastructure investment which helps private sector investment. 
C)  increases in government spending causes private sector investment to fall because the government pushes up interest rates. 
D)  reductions in government spending cause private sector investment to fall because the government pushes up interest rates by borrowing. 
A)  reductions in government spending cut infrastructure investment which hurts private sector investment. 
B)  increases in government spending increase infrastructure investment which helps private sector investment. 
C)  increases in government spending causes private sector investment to fall because the government pushes up interest rates. 
D)  reductions in government spending cause private sector investment to fall because the government pushes up interest rates by borrowing.

Question 15

Which of the following would be  true if all the national debt were owned internally?

Accepted Answer

A)  The federal government would not need to refinance the national debt. 
B)  The federal government would not need to worry about raising taxes to pay interest on the national debt. 
C)  We would still be concerned about the effect on the distribution of income from interest payments on the national debt. 
D)  Budget surpluses would be more likely than budget deficits. 
A)  The federal government would not need to refinance the national debt. 
B)  The federal government would not need to worry about raising taxes to pay interest on the national debt. 
C)  We would still be concerned about the effect on the distribution of income from interest payments on the national debt. 
D)  Budget surpluses would be more likely than budget deficits.

Question 16

Crowding out occurs when the federal government:

Accepted Answer

A)  raises taxes to finance a budget deficit. 
B)  refinances maturing U.S. Treasury bonds. 
C)  borrows by selling bonds to finance a deficit. 
D)  uses a budget surplus to pay off part of the national debt. 
A)  raises taxes to finance a budget deficit. 
B)  refinances maturing U.S. Treasury bonds. 
C)  borrows by selling bonds to finance a deficit. 
D)  uses a budget surplus to pay off part of the national debt.

Question 17

The idea that a large national debt is "mortgaging the future of our children and grandchildren" is misleading because:

Accepted Answer

A)  it is the Federal Reserve that will be responsible for making interest payments on the debt. 
B)  future generations will have to bear the opportunity costs of the resources that are used today. 
C)  future generations will not be liable for the interest obligations of the national debt. 
D)  future generations will inherit the interest income as well as the interest obligations. 
A)  it is the Federal Reserve that will be responsible for making interest payments on the debt. 
B)  future generations will have to bear the opportunity costs of the resources that are used today. 
C)  future generations will not be liable for the interest obligations of the national debt. 
D)  future generations will inherit the interest income as well as the interest obligations.

Question 18

The national debt is:

Accepted Answer

A)  the difference between a nation's exports and imports of goods and services. 
B)  the sum of the personal debt of all citizens in the United States. 
C)  the cumulative effect of all past budget deficits and surpluses of the federal government. 
D)  equal to the current size of the budget deficit. 
A)  the difference between a nation's exports and imports of goods and services. 
B)  the sum of the personal debt of all citizens in the United States. 
C)  the cumulative effect of all past budget deficits and surpluses of the federal government. 
D)  equal to the current size of the budget deficit.

Question 19

If the crowding-out effect is strong, how will the potency of discretionary fiscal policy be affected?

Accepted Answer

A)  It will make fiscal policy more potent. 
B)  It will make fiscal policy less potent. 
C)  The potency of fiscal policy will be unaffected. 
D)  The potency of contractionary will be reduced. 
A)  It will make fiscal policy more potent. 
B)  It will make fiscal policy less potent. 
C)  The potency of fiscal policy will be unaffected. 
D)  The potency of contractionary will be reduced.

Question 20

How does inclusion of the current revenues and expenditures of the Social Security trust fund into the budget calculation affect the reported budget deficit of the federal government?

Accepted Answer

A)  It increases the reported deficit. 
B)  It reduces the reported deficit. 
C)  It exerts no effect on the reported deficit. 
D)  It increases the deficit during an economic boom but reduces it during a recession. 
A)  It increases the reported deficit. 
B)  It reduces the reported deficit. 
C)  It exerts no effect on the reported deficit. 
D)  It increases the deficit during an economic boom but reduces it during a recession.

Exam 23: Federal Deficits Surpluses and the National Debt

"Crowding out" is the theory that an increase in our federal government's budget deficit will likely:

Can the U.S. federal government go broke as a result of a large national debt?

If the federal government runs a budget deficit, but the budget deficit as a percent of GDP is less than the growth rate of real output, the:

Currently, the national debt is approximately:

Supply-side economists argue that less government spending:

Which of the following portions of the national debt impose a net interest burden on the federal government?

If the federal government were to run a budget deficit, this would:

If the national debt rises to the debt ceiling and there is currently a budget ________, the Congress and the President must agree to ________ the debt ceiling or else the federal government will have insufficient funds to pay its bills and will be forced to shut down.

Most of the U.S. national debt is owed to ____. Thus a rising national debt implies that there will be a future redistribution of income and wealth in favor of ____.

Which of the following is a valid concern about federal budget deficits?

"Crowding out" refers to federal government deficits financed by:

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

One concern over external national debt is that interest and principal payments transfer wealth overseas. The percentage of the national debt held in recent years by foreigners is approximately:

Supply-siders argue that:

Which of the following would be true if all the national debt were owned internally?

Crowding out occurs when the federal government:

The idea that a large national debt is "mortgaging the future of our children and grandchildren" is misleading because:

The national debt is:

If the crowding-out effect is strong, how will the potency of discretionary fiscal policy be affected?

How does inclusion of the current revenues and expenditures of the Social Security trust fund into the budget calculation affect the reported budget deficit of the federal government?

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

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

Understanding Direct and Inverse Relationships between Variables

Filters

If the national debt rises to the debt ceiling and there is currently a budget , the Congress and the President must agree to the debt ceiling or else the federal government will have insufficient funds to pay its bills and will be forced to shut down.

Most of the U.S. national debt is owed to . Thus a rising national debt implies that there will be a future redistribution of income and wealth in favor of .