Question 1

An increase in fiscal deficit spending financed by borrowing will increase the national debt.

Accepted Answer

A) True 
 B)False

Question 2

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)  15 percent. 
B)  20 percent. 
C)  40 percent. 
D)  30 percent. 
E)  50 percent. 
A)  15 percent. 
B)  20 percent. 
C)  40 percent. 
D)  30 percent. 
E)  50 percent.

Question 3

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 4

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

Question 5

"Crowding in" refers to federal government deficits:

Accepted Answer

A)  used for public infrastructure which will offset any decline in business investment. 
B)  which reduce private business and consumption spending. 
C)  which reduce future rates of economic growth. 
D)  all of the above. 
A)  used for public infrastructure which will offset any decline in business investment. 
B)  which reduce private business and consumption spending. 
C)  which reduce future rates of economic growth. 
D)  all of the above.

Question 6

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.

Question 7

According to the crowding-out view, budget deficits will:

Accepted Answer

A)  reduce interest rates. 
B)  increase interest rates and retard private investment. 
C)  reduce the investments of foreigners in the United States. 
D)  increase the capital stock available to future generations. 
A)  reduce interest rates. 
B)  increase interest rates and retard private investment. 
C)  reduce the investments of foreigners in the United States. 
D)  increase the capital stock available to future generations.

Question 8

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 9

It is important to distinguish between the privately held portion of the national debt and the portion held by government agencies and the Federal Reserve System because:

Accepted Answer

A)  the government will not have to repay the privately held debt. 
B)  only the privately held debt creates a net interest liability for the federal government. 
C)  the privately held debt does not create a net interest liability for the federal government. 
D)  taxes will have to be raised in order to pay the interest on the debt held by the Federal Reserve system. 
A)  the government will not have to repay the privately held debt. 
B)  only the privately held debt creates a net interest liability for the federal government. 
C)  the privately held debt does not create a net interest liability for the federal government. 
D)  taxes will have to be raised in order to pay the interest on the debt held by the Federal Reserve system.

Question 10

Does government borrowing crowd out private sector spending?

Accepted Answer

Crowding out refers to government defici

Question 11

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 the above 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 the above are correct.

Question 12

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 13

Currently, the U.S. national debt is more than $20 trillion.

Accepted Answer

A) True 
 B)False

Question 14

Compared to the Japan, the national debt as a percentage of GDP in the United States is: ​

Accepted Answer

A)  ​substantially larger. 
B)  ​ the same. 
C)  ​slightly larger. 
D)  ​substantially smaller. 
A)  ​substantially larger. 
B)  ​ the same. 
C)  ​slightly larger. 
D)  ​substantially smaller.

Question 15

​ 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 16

When crowding out occurs, higher government spending results in higher interest rates, which in turn results in:

Accepted Answer

A)  higher inflation. 
B)  less consumption and investment. 
C)  a larger debt ceiling. 
D)  more tax revenues. 
A)  higher inflation. 
B)  less consumption and investment. 
C)  a larger debt ceiling. 
D)  more tax revenues.

Question 17

How does the national debt as a percentage of GDP in the United States compared to Sweden?

Accepted Answer

A)  U.S. national debt ratio is smaller. 
B)  U.S. national debt ratio is larger. 
C)  U.S. national debt ratio is about the same. 
D)  U.S. national debt ratio is substantially smaller. 
A)  U.S. national debt ratio is smaller. 
B)  U.S. national debt ratio is larger. 
C)  U.S. national debt ratio is about the same. 
D)  U.S. national debt ratio is substantially smaller.

Question 18

Which of the following correctly describes the national debt?

Accepted Answer

A)  The excess of annual federal expenditures over annual federal tax revenues. 
B)  Annual federal expenditures less annual federal tax revenues plus foreign U.S. bonds purchases. 
C)  The total amount of money owed by the federal government. 
D)  None of the above. 
A)  The excess of annual federal expenditures over annual federal tax revenues. 
B)  Annual federal expenditures less annual federal tax revenues plus foreign U.S. bonds purchases. 
C)  The total amount of money owed by the federal government. 
D)  None of the above.

Question 19

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.

Question 20

Which of the following is true ?

Accepted Answer

A)  The size of the national debt currently is about the same size as it was during World War II. 
B)  The national debt increases in size whenever the federal government has a surplus budget. 
C)  The national debt's size decreased steadily after 1980. 
D)  The current U.S. national debt is over $13.0 trillion. 
A)  The size of the national debt currently is about the same size as it was during World War II. 
B)  The national debt increases in size whenever the federal government has a surplus budget. 
C)  The national debt's size decreased steadily after 1980. 
D)  The current U.S. national debt is over $13.0 trillion.

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

An increase in fiscal deficit spending financed by borrowing will increase the national debt.

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:

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.

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

"Crowding in" refers to federal government deficits:

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?

According to the crowding-out view, budget deficits will:

Crowding out occurs when the federal government:

It is important to distinguish between the privately held portion of the national debt and the portion held by government agencies and the Federal Reserve System because:

Does government borrowing crowd out private sector spending?

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

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

Currently, the U.S. national debt is more than $20 trillion.

Compared to the Japan, the national debt as a percentage of GDP in the United States is: ​

​ 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 ___________.

When crowding out occurs, higher government spending results in higher interest rates, which in turn results in:

How does the national debt as a percentage of GDP in the United States compared to Sweden?

Which of the following correctly describes the national debt?

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:

Which of the following is true ?

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

Compared to the Japan, the national debt as a percentage of GDP in the United States is:

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 ___.