Exam 14: Deficit Spending and the Public Debt

Suppose the economy is initially operating at full employment. A fiscal policy action that results in an increase in the size of the budget deficit will cause which of the following in the long run?

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.

Public debt is held as

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

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

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

Other things being equal, what is the effect of government deficit increases on interest rates?

An entitlement is

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

Explain how deficit spending could be a burden to future generations.

Expressing the U.S. federal budget deficit as a percentage of Gross Domestic Product (GDP)

Politicians have suggested that the budget deficit could be reduced by

Government programs such as Social Security or Medicare are examples of

The largest component of U.S. federal spending that contributes to the U.S. government budget deficit is

Legislated federal government payments that anyone who qualifies can receive are called

A government budget deficit is

The part of the federal budget that has increased at the fastest rate is

When was the last year the United States had a budget surplus?

If the economy is experiencing an inflationary gap, an increase in the budget surplus

Which of the following is NOT an entitlement?