Question 1

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 2

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. D

Question 3

External debt refers to the portion of the national debt owned by private individuals and internal debt refers to that part owned by the public sector.

Accepted Answer

A) True 
 B)False  False

Question 4

Among the major industrial economies, which of the following had the lowest national debt as a percent of GDP?

Accepted Answer

A)  Canada 
B)  Australia 
C)  United States 
D)  Italy 
A)  Canada 
B)  Australia 
C)  United States 
D)  Italy

Question 5

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 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 the above 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 the above are true.

Question 7

As the investment demand curve becomes steeper, the crowding-out effect will become smaller.

Accepted Answer

A) True 
 B)False

Question 8

Supply-siders feel that high levels of government spending:

Accepted Answer

A)  assist private sector investing by creating infrastructure. 
B)  have no impact on private sector investment. 
C)  complement private spending. 
D)  cause private sector investment to decline because of crowding out. 
E)  cause private sector spending to decrease because of increases in corporate taxes to finance the government spending. 
A)  assist private sector investing by creating infrastructure. 
B)  have no impact on private sector investment. 
C)  complement private spending. 
D)  cause private sector investment to decline because of crowding out. 
E)  cause private sector spending to decrease because of increases in corporate taxes to finance the government spending.

Question 9

The crowding-out effect can be:

Accepted Answer

A)  zero. 
B)  partial. 
C)  complete. 
D)  any of the above. 
A)  zero. 
B)  partial. 
C)  complete. 
D)  any of the above.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

With regard to the national debt, to whom does the federal government owe money?

Accepted Answer

A)  Taxpayers. 
B)  Federal government workers. 
C)  The Federal Reserve System. 
D)  Investors who buy U.S. Treasury bills, bonds, and notes. 
A)  Taxpayers. 
B)  Federal government workers. 
C)  The Federal Reserve System. 
D)  Investors who buy U.S. Treasury bills, bonds, and notes.

Question 13

The national debt is the:

Accepted Answer

A)  difference between a nation's exports and imports of goods and services. 
B)  sum of the personal debt of all citizens in the United States. 
C)  indebtedness of the federal government in the form of outstanding interest-earning government security. 
D)  sum of the net personal debts of Americans to foreigners. 
A)  difference between a nation's exports and imports of goods and services. 
B)  sum of the personal debt of all citizens in the United States. 
C)  indebtedness of the federal government in the form of outstanding interest-earning government security. 
D)  sum of the net personal debts of Americans to foreigners.

Question 14

Which of the following statements about crowding out is false ?

Accepted Answer

A)  It is not caused by a budget surplus. 
B)  It is caused by a budget deficit. 
C)  It can completely offset the multiplier. 
D)  It affects interest rates and not economic growth. 
A)  It is not caused by a budget surplus. 
B)  It is caused by a budget deficit. 
C)  It can completely offset the multiplier. 
D)  It affects interest rates and not economic growth.

Question 15

Which of the following countries has the largest national debt as a percentage of GDP?

Accepted Answer

A)  Greece. 
B)  Japan. 
C)  United States. 
D)  Canada. 
E)  Italy. 
A)  Greece. 
B)  Japan. 
C)  United States. 
D)  Canada. 
E)  Italy.

Question 16

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 17

Between 1960 and 1997, the federal budget was never in surplus.

Accepted Answer

A) True 
 B)False

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

Between 1945 and 1980, the national debt as a percent of GDP:

Accepted Answer

A)  decreased slightly. 
B)  decreased substantially. 
C)  remained about the same. 
D)  increased slightly. 
E)  increased substantially. 
A)  decreased slightly. 
B)  decreased substantially. 
C)  remained about the same. 
D)  increased slightly. 
E)  increased substantially.

Question 20

"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.

Exam 17: Federal Deficits, Surpluses, and the National Debt

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

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

External debt refers to the portion of the national debt owned by private individuals and internal debt refers to that part owned by the public sector.

Among the major industrial economies, which of the following had the lowest national debt as a percent of GDP?

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 statements about crowding out is true ?

As the investment demand curve becomes steeper, the crowding-out effect will become smaller.

Supply-siders feel that high levels of government spending:

The crowding-out effect can be:

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:

With regard to the national debt, to whom does the federal government owe money?

The national debt is the:

Which of the following statements about crowding out is false ?

Which of the following countries has the largest national debt as a percentage of GDP?

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

Between 1960 and 1997, the federal budget was never in surplus.

The national debt is:

Between 1945 and 1980, the national debt as a percent of GDP:

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

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Money and the Federal Reserve System

Money Creation

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

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters

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 .