Question 1

Bonds owned by financial institutions represent ownership of the national debt by the private sector.

Accepted Answer

A) True 
 B)False

Question 2

Since 1960, the federal government has never had two years in a row of budget surpluses.

Accepted Answer

A) True 
 B)False

Question 3

The national debt is unlikely to cause national bankruptcy because the federal government can:

Accepted Answer

A)  raise taxes. 
B)  print money. 
C)  refinance its debt. 
D)  all of the above. 
A)  raise taxes. 
B)  print money. 
C)  refinance its debt. 
D)  all of the above.

Question 4

The crowding-out effect refers to:

Accepted Answer

A)  higher interest rates and reduced private spending that results from financing federal budget deficits. 
B)  higher future taxes accompanying budget deficits to reduce private consumption. 
C)  the inflation rate to rise when the unemployment rate is low. 
D)  increases in private savings to reduce interest rates and, thereby, crowd-out government 
A)  higher interest rates and reduced private spending that results from financing federal budget deficits. 
B)  higher future taxes accompanying budget deficits to reduce private consumption. 
C)  the inflation rate to rise when the unemployment rate is low. 
D)  increases in private savings to reduce interest rates and, thereby, crowd-out government

Question 5

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 6

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 7

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 8

The national debt as a percentage of GDP has remained roughly constant since the end of World War II.

Accepted Answer

A) True 
 B)False

Question 9

Less of the federal debt is owned by federal, state, and local governments than is owned by foreigners.

Accepted Answer

A) True 
 B)False

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

The federal budget process begins when federal agencies submit their budget requests to the:

Accepted Answer

A)  Treasury Department. 
B)  Council of Economic Advisors (CE
A) . 
C)  Office of Management and Budget (OM
B) . 
D)  Congressional Budget Office (CBO). 
A)  Treasury Department. 
B)  Council of Economic Advisors (CE
A) . 
C)  Office of Management and Budget (OM
B) . 
D)  Congressional Budget Office (CBO).

Question 12

One of the problems with a growing national debt is the growing interest payments which must be paid on that debt.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Internal ownership of the debt refers to the portion of the national debt owned by government agencies.

Accepted Answer

A) True 
 B)False

Question 15

If the fiscal year begins without a budget and Congress fails to pass continuing resolution, then:

Accepted Answer

A)  the president has the right to raise the debt ceiling. 
B)  federal agencies operate on the basis of the previous year's budget. 
C)  the interest rate paid on the national debt automatically increases. 
D)  the federal government shuts down. 
A)  the president has the right to raise the debt ceiling. 
B)  federal agencies operate on the basis of the previous year's budget. 
C)  the interest rate paid on the national debt automatically increases. 
D)  the federal government shuts down.

Question 16

Which of the following is false ?

Accepted Answer

A)  The national debt's size decreased steadily after World War II. 
B)  The national debt increases in size whenever the federal government has a surplus budget. 
C)  The size of the national debt currently is about the same size as it was during World War II. 
D)  All of the above are false. 
E)  All of the above are true. 
A)  The national debt's size decreased steadily after World War II. 
B)  The national debt increases in size whenever the federal government has a surplus budget. 
C)  The size of the national debt currently is about the same size as it was during World War II. 
D)  All of the above are false. 
E)  All of the above are true.

Question 17

When the U. S. federal government runs a budget deficit, it borrows money by selling:

Accepted Answer

A)  Treasury bills, notes, and bonds. 
B)  publicly owned land. 
C)  its gold reserves. 
D)  financial assets located in foreign banks. 
A)  Treasury bills, notes, and bonds. 
B)  publicly owned land. 
C)  its gold reserves. 
D)  financial assets located in foreign banks.

Question 18

The United States has a much higher national debt as a percentage of GDP compared to other industrialized nations.

Accepted Answer

A) True 
 B)False

Question 19

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 20

If Congress fails to pass a budget before the fiscal year starts, then federal agencies may continue to operate only if Congress has passed a:

Accepted Answer

A)  balanced budget amendment. 
B)  deficit reduction plan. 
C)  conference resolution. 
D)  continuing resolution. 
A)  balanced budget amendment. 
B)  deficit reduction plan. 
C)  conference resolution. 
D)  continuing resolution.

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

Bonds owned by financial institutions represent ownership of the national debt by the private sector.

Since 1960, the federal government has never had two years in a row of budget surpluses.

The national debt is unlikely to cause national bankruptcy because the federal government can:

The crowding-out effect refers to:

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

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

External debt is that portion of the national debt:

The national debt as a percentage of GDP has remained roughly constant since the end of World War II.

Less of the federal debt is owned by federal, state, and local governments than is owned by foreigners.

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

The federal budget process begins when federal agencies submit their budget requests to the:

One of the problems with a growing national debt is the growing interest payments which must be paid on that 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:

Internal ownership of the debt refers to the portion of the national debt owned by government agencies.

If the fiscal year begins without a budget and Congress fails to pass continuing resolution, then:

Which of the following is false ?

When the U. S. federal government runs a budget deficit, it borrows money by selling:

The United States has a much higher national debt as a percentage of GDP compared to other industrialized nations.

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

If Congress fails to pass a budget before the fiscal year starts, then federal agencies may continue to operate only if Congress has passed a:

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

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