Question 1

Which of the following is a true statement about the federal deficit and the national debt?

Accepted Answer

A) Both are "flow" concepts. 
B) The deficit is a "flow" concept and the debt is a "stock" concept. 
C) The deficit is a "stock" concept and the debt is a "flow" concept. 
D) Both are "stock" concepts. 
A) Both are "flow" concepts. 
B) The deficit is a "flow" concept and the debt is a "stock" concept. 
C) The deficit is a "stock" concept and the debt is a "flow" concept. 
D) Both are "stock" concepts.

Question 2

In 2011,approximately what percent of the national debt was held by the Federal Reserve system?

Accepted Answer

A) 5 percent 
B) 10 percent 
C) 40 percent 
D) 55 percent 
A) 5 percent 
B) 10 percent 
C) 40 percent 
D) 55 percent

Question 3

What determines the creditworthiness of any organization,including the federal government?

Accepted Answer

A) the size of its debt relative to its income base 
B) the interest rate at which it can borrow money 
C) the length of time it has existed 
D) the length of time it is expected to operate 
A) the size of its debt relative to its income base 
B) the interest rate at which it can borrow money 
C) the length of time it has existed 
D) the length of time it is expected to operate

Question 4

Currently,the Social Security trust fund is running a

Accepted Answer

A) deficit,which reduces the apparent size of the budget deficit. 
B) surplus,which reduces the apparent size of the budget deficit. 
C) surplus,which increases the apparent size of the budget deficit. 
D) deficit,which increases the apparent size of the budget deficit. 
A) deficit,which reduces the apparent size of the budget deficit. 
B) surplus,which reduces the apparent size of the budget deficit. 
C) surplus,which increases the apparent size of the budget deficit. 
D) deficit,which increases the apparent size of the budget deficit.

Question 5

Inclusion of the Social Security Trust Fund in the overall budget calculation

Accepted Answer

A) reduces the reported size of the budget deficit because the Social Security system is currently running a surplus. 
B) increases the size of the reported budget deficit because the Social Security system is currently running a deficit. 
C) decreases the size of the reported budget deficit because the Social Security system is currently running a deficit. 
D) increases the size of the reported budget deficit because the Social Security system is currently running a surplus. 
A) reduces the reported size of the budget deficit because the Social Security system is currently running a surplus. 
B) increases the size of the reported budget deficit because the Social Security system is currently running a deficit. 
C) decreases the size of the reported budget deficit because the Social Security system is currently running a deficit. 
D) increases the size of the reported budget deficit because the Social Security system is currently running a surplus.

Question 6

Sizeable budget deficits can be expected in the years ahead because

Accepted Answer

A) the retirement of the baby boom generation will soon begin to push expenditures on both Social Security and Medicare upward. 
B) the political incentive structure encourages politicians to spend more revenue than they are willing to tax. 
C) both a and b are true. 
D) both a and b are false.Budget surpluses can be expected in the years ahead. 
A) the retirement of the baby boom generation will soon begin to push expenditures on both Social Security and Medicare upward. 
B) the political incentive structure encourages politicians to spend more revenue than they are willing to tax. 
C) both a and b are true. 
D) both a and b are false.Budget surpluses can be expected in the years ahead.

Question 7

Privately held government debt is

Accepted Answer

A) the portion of the national debt held by government agencies. 
B) the portion of the national debt that imposes a net interest burden on the federal government. 
C) the portion of the national debt held by foreign citizens. 
D) equal to the federal government debt minus any state and local government surpluses. 
A) the portion of the national debt held by government agencies. 
B) the portion of the national debt that imposes a net interest burden on the federal government. 
C) the portion of the national debt held by foreign citizens. 
D) equal to the federal government debt minus any state and local government surpluses.

Question 8

In 2011,approximately what percent of the national debt was held by federal government agencies?

Accepted Answer

A) 1 percent 
B) 22 percent 
C) 32 percent 
D) a little more than 80 percent 
A) 1 percent 
B) 22 percent 
C) 32 percent 
D) a little more than 80 percent

Question 9

The new classical view of budget deficits assumes that

Accepted Answer

A) people view government bonds as an addition to their wealth. 
B) individuals do not anticipate the tax liability implied by deficit spending. 
C) increased government borrowing will raise the interest rate and retard private borrowing and capital formation. 
D) if future taxes (debt)are substituted for current taxes,people will save the reduction in current taxes in order to pay the higher future taxes. 
A) people view government bonds as an addition to their wealth. 
B) individuals do not anticipate the tax liability implied by deficit spending. 
C) increased government borrowing will raise the interest rate and retard private borrowing and capital formation. 
D) if future taxes (debt)are substituted for current taxes,people will save the reduction in current taxes in order to pay the higher future taxes.

Question 10

The new classical view argues that an increase in government debt will cause people to

Accepted Answer

A) increase their current saving so they will be better able to pay the higher future taxes implied by the increase in the debt. 
B) increase their current consumption since the substitution of debt for taxes makes them wealthier. 
C) shift their savings to foreign banks where they will be more secure. 
D) do all of the above. 
A) increase their current saving so they will be better able to pay the higher future taxes implied by the increase in the debt. 
B) increase their current consumption since the substitution of debt for taxes makes them wealthier. 
C) shift their savings to foreign banks where they will be more secure. 
D) do all of the above.

Question 11

When is debt financing most likely to harm future generations of Americans?

Accepted Answer

A) When the debt is held by domestic investors. 
B) Any time the debt is held by foreign investors. 
C) When the debt is held by foreign investors and the funds are channeled into productive investment projects. 
D) When the debt is held by foreign investors and the funds are used to finance either current consumption or unproductive investments. 
A) When the debt is held by domestic investors. 
B) Any time the debt is held by foreign investors. 
C) When the debt is held by foreign investors and the funds are channeled into productive investment projects. 
D) When the debt is held by foreign investors and the funds are used to finance either current consumption or unproductive investments.

Question 12

Deficit spending and a large national debt can have important effects on future generations because they

Accepted Answer

A) allow generations to pass the opportunity costs of government spending onto future generations. 
B) can significantly impact spending on capital formation. 
C) pass costs onto future generations with no corresponding benefits. 
D) will cause the government to go bankrupt. 
A) allow generations to pass the opportunity costs of government spending onto future generations. 
B) can significantly impact spending on capital formation. 
C) pass costs onto future generations with no corresponding benefits. 
D) will cause the government to go bankrupt.

Question 13

If one subtracts the amount of bonds held by agencies of the federal government and the Federal Reserve from the national debt,what remains is known as the

Accepted Answer

A) external debt. 
B) privately held government debt. 
C) trade deficit. 
D) budget deficit. 
A) external debt. 
B) privately held government debt. 
C) trade deficit. 
D) budget deficit.

Question 14

If a country with a large government debt uses money creation to service and repay the debt,this will lead to

Accepted Answer

A) lower interest rates. 
B) an appreciation of the nation's currency in the foreign exchange market. 
C) inflation,higher interest rates,and a financial crisis. 
D) rapid economic growth,as the expansionary monetary policy stimulates the economy and generates the additional tax revenue to service the larger debt. 
A) lower interest rates. 
B) an appreciation of the nation's currency in the foreign exchange market. 
C) inflation,higher interest rates,and a financial crisis. 
D) rapid economic growth,as the expansionary monetary policy stimulates the economy and generates the additional tax revenue to service the larger debt.

Question 15

In 2009,a little more than half of the privately held national debt was held by

Accepted Answer

A) foreign investors. 
B) Federal Reserve banks. 
C) large corporations. 
D) government trust funds. 
A) foreign investors. 
B) Federal Reserve banks. 
C) large corporations. 
D) government trust funds.

Question 16

If the federal government fails to control the growth of its debt and the debt grows larger and larger as a share of the economy,which of the following is most likely to happen?

Accepted Answer

A) The government will default by refusing to pay the bondholders. 
B) Interest rates will decline and this will make it easier for the government to handle the outstanding debt. 
C) The government will repay bondholders with newly created money and this will lead to inflation. 
D) The government will repay the bondholders with newly created money and the expansionary monetary policy will generate a long-term economic boom. 
A) The government will default by refusing to pay the bondholders. 
B) Interest rates will decline and this will make it easier for the government to handle the outstanding debt. 
C) The government will repay bondholders with newly created money and this will lead to inflation. 
D) The government will repay the bondholders with newly created money and the expansionary monetary policy will generate a long-term economic boom.

Question 17

The difference between the federal budget deficit and the national debt is that the

Accepted Answer

A) national debt is the cumulative effect of all prior surpluses and deficits. 
B) budget deficit is the cumulative effect of all prior debts and surpluses. 
C) debt includes all outstanding bonds,while the deficit excludes bonds held by government agencies. 
D) There is no difference. 
A) national debt is the cumulative effect of all prior surpluses and deficits. 
B) budget deficit is the cumulative effect of all prior debts and surpluses. 
C) debt includes all outstanding bonds,while the deficit excludes bonds held by government agencies. 
D) There is no difference.

Question 18

As the large baby-boom generation moves into the retirement phase of life,this will

Accepted Answer

A) make it easier for the federal government to finance its budget deficit because the baby-boomers will be the wealthiest generation of retirees in American history. 
B) make it easier for the federal government to reduce spending because senior citizens do not spend much on consumption. 
C) make it more difficult for the federal government to finance its budget deficit because the retirement of the baby-boomers will mean more expenditures for Social Security and Medicare. 
D) not affect the federal deficit because there is no reason to expect that either federal spending or tax revenues will be influenced by the retirement of the baby-boomers. 
A) make it easier for the federal government to finance its budget deficit because the baby-boomers will be the wealthiest generation of retirees in American history. 
B) make it easier for the federal government to reduce spending because senior citizens do not spend much on consumption. 
C) make it more difficult for the federal government to finance its budget deficit because the retirement of the baby-boomers will mean more expenditures for Social Security and Medicare. 
D) not affect the federal deficit because there is no reason to expect that either federal spending or tax revenues will be influenced by the retirement of the baby-boomers.

Question 19

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 20

Since 1960,there have been how many years of budget surplus?

Accepted Answer

A) 5 
B) 10 
C) 20 
D) 30 
A) 5 
B) 10 
C) 20 
D) 30

Exam 36: The Federal Budget and the National Debt

Which of the following is a true statement about the federal deficit and the national debt?

In 2011,approximately what percent of the national debt was held by the Federal Reserve system?

What determines the creditworthiness of any organization,including the federal government?

Currently,the Social Security trust fund is running a

Inclusion of the Social Security Trust Fund in the overall budget calculation

Sizeable budget deficits can be expected in the years ahead because

Privately held government debt is

In 2011,approximately what percent of the national debt was held by federal government agencies?

The new classical view of budget deficits assumes that

The new classical view argues that an increase in government debt will cause people to

When is debt financing most likely to harm future generations of Americans?

Deficit spending and a large national debt can have important effects on future generations because they

If one subtracts the amount of bonds held by agencies of the federal government and the Federal Reserve from the national debt,what remains is known as the

If a country with a large government debt uses money creation to service and repay the debt,this will lead to

In 2009,a little more than half of the privately held national debt was held by

If the federal government fails to control the growth of its debt and the debt grows larger and larger as a share of the economy,which of the following is most likely to happen?

The difference between the federal budget deficit and the national debt is that the

As the large baby-boom generation moves into the retirement phase of life,this will

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

Since 1960,there have been how many years of budget surplus?

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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