Question 1

Which of the following is a valid concern about the national debt for a country whose debt is held entirely by its citizens?

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,future generations may have lower incomes because they will inherit a smaller stock of capital.

Question 2

Indicate what might be done to restrain the tendency of the democratic process to generate budget deficits?

Accepted Answer

A balanced-budget amendment to the Const...

Question 3

As baby-boomers reach retirement age and draw on Social Security and Medicare,

Accepted Answer

A)  the Social Security Trust Fund will switch from running a deficit to a surplus.
B)  unfunded promises included in the federal budget will decrease.
C)  expenditures on these programs will increase the size of the federal debt.
D)  the federal debt as a share of GDP will decrease.

Question 4

Which of the following is a valid concern about the national debt for a country whose debt is held entirely by its citizens?

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,future generations may have lower incomes because they will inherit a smaller stock of capital.

Question 5

The table below shows the revenues and expenditures for a new country during its first three years of existence.Use this data to answer the following question(s) .
Table ST8-1
 
-Refer to Table ST8-1.Which of the following is correct regarding this government?

Accepted Answer

A)  In the third year,it had a $50 national debt and ran a $30 deficit.
B)  In the third year,it ran a $50 deficit and its national debt after the third year was $60.
C)  In the third year,it ran a $50 surplus and its national debt after the third year was $30.
D)  In the third year,it ran a $50 deficit and its national debt after the third year was $30.

Question 6

Widespread acceptance of the Keynesian theory of fiscal policy

Accepted Answer

A)  caused most economists to reject the public choice view of budget deficits.
B)  relaxed the political pressure to balance the budget and,hence,paved the way for the persistent budget deficits of the last five decades.
C)  was based on the view that continual budget deficits would help stabilize the economy.
D)  increased the pressure for a constitutional amendment mandating that the federal government balance its budget.

Question 7

In 2009,the privately held federal debt was approximately what percent of GDP?

Accepted Answer

A)  11 percent
B)  31 percent
C)  57 percent
D)  100 percent

Question 8

A government with a national debt that is large and growing relative to the size of the economy will

Accepted Answer

A)  eventually find it difficult to borrow in global credit markets.
B)  be able to borrow at lower interest rates than countries with less outstanding debt.
C)  have to allocate a large and growing amount of tax revenue to the payment of interest on the outstanding debt.
D)  do both a and c.

Question 9

The external debt is the portion of the national debt

Accepted Answer

A)  owned by foreigners.
B)  owned by the public instead of the Fed.
C)  owned by any party other than the Treasury Department.
D)  attributable to off-budget federal programs.

Question 10

When government debt is financed internally,future generations will

Accepted Answer

A)  inherit a higher tax liability without additional interest income.
B)  inherit neither higher taxes nor additional interest income.
C)  inherit both higher taxes and additional interest income.
D)  receive lower interest income and a lower tax liability.

Question 11

Public choice analysis explains that

Accepted Answer

A)  politicians have strong incentives to favor deficit finance over tax finance.
B)  policy makers believe the budget should be balanced except in times of war.
C)  the legislator who is a spending "watch dog" can save her constituents a substantial amount of tax money.
D)  given the way Congress operates,the apparent popularity of deficit financing is surprising.

Question 12

If the U.S.government were to run a substantial budget deficit,what would be the effects on the economy under the new classical view?

Accepted Answer

According to the new classical view,peop...

Question 13

As conventionally measured,budget deficit and surplus calculations include the revenues and expenditures of

Accepted Answer

A)  only current government operations;government trust funds are omitted.
B)  all government trust funds except Social Security.
C)  the Social Security Trust Fund,but other government trust funds are omitted.
D)  all government trust funds,including Social Security.

Question 14

Which of the following is true of deficit spending and government debt?

Accepted Answer

A)  The opportunity costs of government spending must be incurred today and cannot be passed on through deficit spending.
B)  Because of the national debt,future generations will incur liabilities without any corresponding benefits.
C)  Financing government spending with debt allows the government to pass the opportunity costs of government spending along to future generations.
D)  All of the public debt is owed to foreigners because the people who pay taxes are U.S.citizens.

Question 15

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.

Question 16

If the federal government were to run a budget surplus,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)  decrease the national debt only if the government also reduces the supply of money.

Question 17

Which of the following portions of the national debt impose a net interest burden on the federal government?

Accepted Answer

A)  treasury bonds held by government agencies
B)  treasury bonds held by private investors
C)  treasury bonds held by the Federal Reserve system
D)  treasury bonds held in the Social Security Trust Fund

Question 18

It is important to distinguish between the privately held portion of the national debt and the portion held by government agencies and the Federal Reserve system because

Accepted Answer

A)  the government will not have to repay the privately held debt.
B)  only the privately held debt creates a net interest liability for the federal government.
C)  the privately held debt does not create a net interest liability for the federal government.
D)  taxes will have to be raised in order to pay the interest on the debt held by the Federal Reserve system.

Question 19

At year-end 2010,the national debt of the United States was approximately

Accepted Answer

A)  5 percent of GDP.
B)  25 percent of GDP.
C)  75 percent of GDP.
D)  95 percent of GDP.

Question 20

Why are the bonds held by the Fed and government agencies excluded from the privately held debt figures?

Accepted Answer

A)  The U.S.Treasury does not have to pay off these bonds.
B)  These bonds were not issued by the Treasury.
C)  These bonds do not represent a net-interest obligation of the government.
D)  These bonds are not interest-bearing bonds.

Exam 36: The Federal Budget and the National Debt

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

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Which of the following is a valid concern about the national debt for a country whose debt is held entirely by its citizens?

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A government with a national debt that is large and growing relative to the size of the economy will

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When government debt is financed internally,future generations will

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Public choice analysis explains that

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If the U.S.government were to run a substantial budget deficit,what would be the effects on the economy under the new classical view?

Correct AnswerverifiedAccording to the new classical view,peop...View AnswerShow Answer

It is important to distinguish between the privately held portion of the national debt and the portion held by government agencies and the Federal Reserve system because

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As baby-boomers reach retirement age and draw on Social Security and Medicare,

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Which of the following is true of deficit spending and government debt?

Correct AnswerverifiedShow Answer

Which of the following is a valid concern about the national debt for a country whose debt is held entirely by its citizens?

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In 2009,the privately held federal debt was approximately what percent of GDP?

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Widespread acceptance of the Keynesian theory of fiscal policy

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The table below shows the revenues and expenditures for a new country during its first three years of existence.Use this data to answer the following question(s) . Table ST8-1 -Refer to Table ST8-1.Which of the following is correct regarding this government?

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The external debt is the portion of the national debt

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As conventionally measured,budget deficit and surplus calculations include the revenues and expenditures of

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At year-end 2010,the national debt of the United States was approximately

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Which of the following portions of the national debt impose a net interest burden on the federal government?

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Indicate what might be done to restrain the tendency of the democratic process to generate budget deficits?

Correct AnswerverifiedA balanced-budget amendment to the Const...View AnswerShow Answer

Why are the bonds held by the Fed and government agencies excluded from the privately held debt figures?

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

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According to the new classical view,peop...
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A balanced-budget amendment to the Const...
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