Question 1

The total value of all outstanding federal government securities is called

Accepted Answer

A)  the budget deficit. 
B)  the public debt. 
C)  the trade deficit. 
D)  crowding out. 
A)  the budget deficit. 
B)  the public debt. 
C)  the trade deficit. 
D)  crowding out.

Question 2

Which of the following statements about the public debt is true?

Accepted Answer

A)  It is a stock variable. 
B)  It is equal to the budget deficit. 
C)  It decreases when the government runs a budget deficit.. 
D)  All of the above. 
A)  It is a stock variable. 
B)  It is equal to the budget deficit. 
C)  It decreases when the government runs a budget deficit.. 
D)  All of the above.

Question 3

A federal deficit of $300 billion means that

Accepted Answer

A)  the government has a total debt of $300 billion. 
B)  government spending is $300 billion a year. 
C)  the government is spending $300 billion a year more than it is collecting in taxes. 
D)  the government plans on collecting $300 billion in taxes this year. 
A)  the government has a total debt of $300 billion. 
B)  government spending is $300 billion a year. 
C)  the government is spending $300 billion a year more than it is collecting in taxes. 
D)  the government plans on collecting $300 billion in taxes this year.

Question 4

Assume the economy is closed and that it is operating at full employment. Which statement is true when the size of the budget deficit decreases?

Accepted Answer

A)  The interest rate will decrease, leading to an increase in investment and capital formation. 
B)  Demand and supply of credit will increase. 
C)  A reduction in the growth of productivity, and a reduction in society's standard of living will occur. 
D)  The increased amount of public goods will crowd out privately produced goods. 
A)  The interest rate will decrease, leading to an increase in investment and capital formation. 
B)  Demand and supply of credit will increase. 
C)  A reduction in the growth of productivity, and a reduction in society's standard of living will occur. 
D)  The increased amount of public goods will crowd out privately produced goods.

Question 5

Public debt is held as

Accepted Answer

A)  corporate bonds and common stocks of the largest companies. 
B)  Federal Reserve Notes. 
C)  U.S. Notes. 
D)  Treasury Bills, Treasury Notes, Treasury Bonds, and U.S. Savings Bonds. 
A)  corporate bonds and common stocks of the largest companies. 
B)  Federal Reserve Notes. 
C)  U.S. Notes. 
D)  Treasury Bills, Treasury Notes, Treasury Bonds, and U.S. Savings Bonds.

Question 6

When the Social Security Administration holds U.S. Treasury Bonds

Accepted Answer

A)  interagency borrowing has occurred and the government owes itself. 
B)  there is a balanced budget. 
C)  an entitlement has occurred. 
D)  the gross public debt has increased. 
A)  interagency borrowing has occurred and the government owes itself. 
B)  there is a balanced budget. 
C)  an entitlement has occurred. 
D)  the gross public debt has increased.

Question 7

Suppose the economy is initially experiencing a short-run recessionary gap. An increase in the size of the budget deficit will

Accepted Answer

A)  increase the size of the recessionary gap. 
B)  reduce the size of the recessionary gap. 
C)  lead to an increase in prices with no increase in real GDP. 
D)  lead to a decrease in prices with an increase in real GDP. 
A)  increase the size of the recessionary gap. 
B)  reduce the size of the recessionary gap. 
C)  lead to an increase in prices with no increase in real GDP. 
D)  lead to a decrease in prices with an increase in real GDP.

Question 8

Today, U.S. government spending on entitlements represents ________ of the total federal budget.

Accepted Answer

A)  about 10 percent 
B)  less than 25 percent 
C)  nearly 60 percent 
D)  nearly 90 percent 
A)  about 10 percent 
B)  less than 25 percent 
C)  nearly 60 percent 
D)  nearly 90 percent

Question 9

Stocks change ________ whereas flows relate to ________.

Accepted Answer

A)  within a given period of time; changes between points in time 
B)  only at the end of each year; amounts at a given point in time 
C)  between points in time; changes within a given time period 
D)  and that causes flows to change; changes that have no impact on stocks 
A)  within a given period of time; changes between points in time 
B)  only at the end of each year; amounts at a given point in time 
C)  between points in time; changes within a given time period 
D)  and that causes flows to change; changes that have no impact on stocks

Question 10

Net public debt is

Accepted Answer

A)  all federal public debt irrespective of who owns it. 
B)  gross public debt minus all government interagency borrowing. 
C)  all public debt minus all money owed on the federal income tax. 
D)  all public debt plus all government interagency borrowing. 
A)  all federal public debt irrespective of who owns it. 
B)  gross public debt minus all government interagency borrowing. 
C)  all public debt minus all money owed on the federal income tax. 
D)  all public debt plus all government interagency borrowing.

Question 11

Other things being equal, what is the effect of deficit spending on credit markets?

Accepted Answer

A)  Both the demand for credit and the supply of credit will increase. 
B)  Both the demand for credit and the supply of credit will decrease. 
C)  The demand for credit increases while the supply of credit remains constant. 
D)  The supply of credit will increase while the demand for credit remains the same. 
A)  Both the demand for credit and the supply of credit will increase. 
B)  Both the demand for credit and the supply of credit will decrease. 
C)  The demand for credit increases while the supply of credit remains constant. 
D)  The supply of credit will increase while the demand for credit remains the same.

Question 12

If the government spends less than what it receives in taxes during a given interval, then the result is

Accepted Answer

A)  a balanced budget. 
B)  an entitlement. 
C)  unrealized public debt. 
D)  a government budget surplus. 
A)  a balanced budget. 
B)  an entitlement. 
C)  unrealized public debt. 
D)  a government budget surplus.

Question 13

Which of the following is true of the relationship between U.S. trade deficits and federal government budget deficits?

Accepted Answer

A)  Increases in the budget deficit tend to be associated with increases in the trade deficit. 
B)  Increases in the budget deficit tend to be associated with reductions in the trade deficit. 
C)  Increases in the budget deficit are always associated with increases in the trade deficit. 
D)  Increases in the budget deficit are always associated with reductions in the trade deficit. 
A)  Increases in the budget deficit tend to be associated with increases in the trade deficit. 
B)  Increases in the budget deficit tend to be associated with reductions in the trade deficit. 
C)  Increases in the budget deficit are always associated with increases in the trade deficit. 
D)  Increases in the budget deficit are always associated with reductions in the trade deficit.

Question 14

The fastest-growing part of the federal budget is

Accepted Answer

A)  national defense. 
B)  payments for services rendered. 
C)  entitlements. 
D)  government salaries. 
A)  national defense. 
B)  payments for services rendered. 
C)  entitlements. 
D)  government salaries.

Question 15

When government spending is less than the tax revenues during a specific time period, this is known as a

Accepted Answer

A)  government budget deficit. 
B)  government budget surplus. 
C)  balanced budget. 
D)  public debt. 
A)  government budget deficit. 
B)  government budget surplus. 
C)  balanced budget. 
D)  public debt.

Question 16

Suppose the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the long run?

Accepted Answer

A)  a recessionary gap. 
B)  a reduction in real GDP. 
C)  an inflationary gap. 
D)  none of the above. 
A)  a recessionary gap. 
B)  a reduction in real GDP. 
C)  an inflationary gap. 
D)  none of the above.

Question 17

Which of the following correctly describes a way in which deficit spending can impose a burden on future generations? I. Failure to allocate deficit spending to uses that boost future real Gross Domestic Product (GDP) will require taxing future generations at a higher rate to repay the resulting higher public debt.
II) Government deficits that lead to higher employment and real Gross Domestic Product (GDP) in the future will generate increased income taxes for future governments, which will respond by spending the higher tax revenues, creating higher future government budget deficits.
III) Other things being equal, deficit spending fuels increased consumption of goods and services by the current generation that crowds out capital investment, thereby leaving future generations with a smaller stock of capital than otherwise would have existed.

Accepted Answer

A)  I only 
B)  II only 
C)  I and III only 
D)  II and III only 
A)  I only 
B)  II only 
C)  I and III only 
D)  II and III only

Question 18

If the net public debt expanded last year, then which of the following most likely occurred during the year?

Accepted Answer

A)  The government's budget was balanced. 
B)  The government experienced a budget surplus. 
C)  The government experienced a budget deficit. 
D)  The government's tax collections exceeded its spending. 
A)  The government's budget was balanced. 
B)  The government experienced a budget surplus. 
C)  The government experienced a budget deficit. 
D)  The government's tax collections exceeded its spending.

Question 19

Gross public debt is the amount of funds that

Accepted Answer

A)  U.S. residents owe to foreign residents. 
B)  states owe to the federal government. 
C)  the federal government owes to taxpayers. 
D)  the federal government owes to all holders of U.S. securities. 
A)  U.S. residents owe to foreign residents. 
B)  states owe to the federal government. 
C)  the federal government owes to taxpayers. 
D)  the federal government owes to all holders of U.S. securities.

Question 20

The two ways in which deficit spending can impose a burden on future generations are

Accepted Answer

A)  by requiring future generations to face higher taxes and to work with a lower accumulated stock of capital goods. 
B)  by requiring future generations to face lower government spending and to utilize a smaller stock of human capital. 
C)  by substituting private goods for public goods and thereby shifting resources to foreign residents. 
D)  by substituting private goods for public goods and thereby benefiting only large businesses. 
A)  by requiring future generations to face higher taxes and to work with a lower accumulated stock of capital goods. 
B)  by requiring future generations to face lower government spending and to utilize a smaller stock of human capital. 
C)  by substituting private goods for public goods and thereby shifting resources to foreign residents. 
D)  by substituting private goods for public goods and thereby benefiting only large businesses.

Exam 14: Deficit Spending and the Public Debt

The total value of all outstanding federal government securities is called

Which of the following statements about the public debt is true?

A federal deficit of $300 billion means that

Assume the economy is closed and that it is operating at full employment. Which statement is true when the size of the budget deficit decreases?

Public debt is held as

When the Social Security Administration holds U.S. Treasury Bonds

Suppose the economy is initially experiencing a short-run recessionary gap. An increase in the size of the budget deficit will

Today, U.S. government spending on entitlements represents ________ of the total federal budget.

Stocks change ________ whereas flows relate to ________.

Net public debt is

Other things being equal, what is the effect of deficit spending on credit markets?

If the government spends less than what it receives in taxes during a given interval, then the result is

Which of the following is true of the relationship between U.S. trade deficits and federal government budget deficits?

The fastest-growing part of the federal budget is

When government spending is less than the tax revenues during a specific time period, this is known as a

Suppose the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the long run?

If the net public debt expanded last year, then which of the following most likely occurred during the year?

Gross public debt is the amount of funds that

The two ways in which deficit spending can impose a burden on future generations are

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Stocks change whereas flows relate to .