Exam 18: Treasury Auctions, Public Debt, and Government Borrowing: Exploring the Us Treasury System

Retirement of government debt held by the nonbank public is likely to reduce prices and increase unemployment.

If the U.S. Government runs a small budget deficit, the Treasury could cover the shortfall by:

While more state and local government funds are needed as the population continues to grow, it is not clear whether those needed funds can be raised at reasonable cost given:

If the Treasury uses a budget surplus to retire Treasury securities and reduces the national debt, national income will ____ and interest rates will ____.

From 1970 - 1997, the U.S. federal government's budget was in deficit.

Treasury borrowing directly from Federal Reserve:

New US Treasury IOUs around the globe have totaled more than $3 trillion annually in recent years, fueled by close to 500 treasury auctions per year.

Suppose the public debt of the United States consisted of the following types of security issues (all figures in billions of dollars): Please calculate the following: the total marketable debt; the total nonmarketable debt; the total interest-bearing debt; and the gross public debt.

In 1992 the U.S. Congress passed a balanced budget amendment in order to move the United States government closer to equality of revenues and expenditures.

If the Treasury is compelled by a sizable budget deficit to borrow funds from the Federal Reserve banks, all of the following effects are likely except one. Which effect is not likely to happen?

Due to drastic cuts in federal spending and strong economic growth it now appears that the federal government will experience a $10 billion budget surplus during the current fiscal year. If the Treasury plans to retain $2 billion of this surplus in its cash account at the Federal Reserve and to use the balance to retire $5 billion in government securities held by depository institutions and $3 billion held by the general public, use T accounts to show the effects of this debt retirement operation.

On the run securities tend to be more liquid and trade at __________ than off the run Treasury IOUs.

Recent research suggests there is a positive relationship between the size of the net U.S. Government budget deficit and:

Smaller financial institutions and individuals account for most of the bids placed in each U.S. Treasury auction.

U.S. government securities carry zero market risk.

Because the interest rates on Treasury note and bonds are fixed, the interest burden on the U.S. taxpayer remains unchanged when market interest rates increase.

The market for government securities is the anchor of the U.S. financial system. The increasing ratio of government holdings of its own debt is therefore:

Added government borrowing to finance a deficit tends to:

The marketable public debt consists of:

On the run securities tend to be more liquid and trade at somewhat higher prices than off the run Treasury IOUs.