Chapter 14

The difference between the gross public debt and the net public debt is that the

gross public debt includes government interagency borrowing while the net public debt does not

Net public debt is

gross public debt minus all government interagency borrowing.

In which decade did the United States begin experiencing large trade deficits?

1980s

According to the text, approximately what percentage of U.S. net public debt is held by foreign residents?

50%

According to the text, the net public debt to Gross Domestic Product (GDP) ratio is currently about

60%

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

A balanced budget

When government revenues exceed government outlays in a particular year, this is called

A budget surplus

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

A government budget surplus

How does a government budget deficit occur?

A government's spending exceeds its tax revenues.

The total value of all outstanding federal government securities is called

A public debt

What is the short-run effect of increased deficit spending on an economy experiencing a recessionary gap?

Aggregate demand increases, and the gap closes

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

Increases in the budget deficit tend to be associated with increases in the trade deficit

In the long run, what effect does a government's deficit spending have on equilibrium real Gross Domestic Product (GDP)?

Higher government deficits will not raise equilibrium Gross Domestic Product (GDP) above the full-employment level.

Which of the following is true of the U.S. trade balance and the federal government budget?

In most years since the 1970s, both have been in deficit.

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

Interest rates rise

How does the federal government finance a budget deficit?

It borrows funds by selling Treasury bonds.

Are federal budget deficits related to trade deficits?

Yes. As deficit spending goes up, it is likely government borrowing will, too. Then foreign residents who lend funds to the U.S. government have less to spend on our goods, so U.S. exports will fall.

What is the fastest growing component of the federal government budget?

Spending on entitlements

Suppose that the government of Summerfield spends $2 trillion in 2013 and receives tax revenues of $1.5 trillion. Which of the following is true?

Summerfield has a budget deficit of $0.5 trillion

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

The demand for credit increases while the supply of credit remains constant.

Which of the following is true about how trade deficits and government budget deficits are related?

The government budget deficit leads to higher interest rates that will lead to a trade deficit.

Which of the following statements has usually held true about the relationship between the trade deficits and government budget deficits?

There is a positive relationship between trade deficits and budget deficits.

In the current year, a nation's government spending equals $1.5 trillion and its revenues are $1.9 trillion. Which of the following is true?

This nation has a current year budget surplus of $0.4 trillion

Are federal budget deficits related to trade deficits?

Yes. Higher deficit spending goes up results in more government borrowing, and foreign residents who lend funds to the U.S. government have fewer resources to spend U.S. export goods.

When government spending exceeds government revenues during a given period of time

a budget deficit exists.

In the long run, a higher government budget deficit causes

a decrease in private spending while equilibrium real GDP remains unchanged.

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

a government budget deficit.

In the short run, a fiscal policy action that results in a reduction in the size of the budget deficit will cause

a reduction in real GDP with falling prices if the economy was below or at full employment.

A government balanced budget is

a situation in which the government's spending is exactly equal to the total taxes and other revenues it collects during a given time period.

The difference between net public debt and gross public debt is

all government interagency borrowing

The difference between the gross public debt and the net public debt is

all government interagency borrowing

A government budget deficit is

an excess of government spending over government revenues during a given time period.

A government budget surplus is

an excess of revenues over government spending.

One of the long-run effects of higher government budget deficits is

an increase in the government's share of the nation's economic activity.

When foreign residents buy U.S. Treasury securities to finance the budget deficit,

we can also anticipate an increase in the trade deficit.

If the government's spending exactly equals its revenues during a budget year, that government is

balancing its budget

Stocks change ________ whereas flows relate to ________.

between points in time; changes within a given time period

Historical evidence seems to indicate that

budget and trade deficits generally move in the same direction.

Which of the following is NOT an example of a flow variable?

capital stock

The largest expenditure component of the federal budget is spending on

entitlement programs.

Guaranteed benefits under government programs such as Social Security or Medicare are called

entitlements

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

entitlements

The amount of funds the Social Security system has loaned the federal government is

excluded from the net public debt

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

interagency borrowing has occurred and the government owes itself.

Which of the following statements about the budget deficit is true?

it is a flow variable

In the long run, higher government budget deficits will

lead to a redistribution of real GDP from privately produced goods and services to government produced goods and services.

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

nearly 60 percent

Gross public debt minus all government interagency borrowing is

net public debt.

Historic data indicate that there is usually a ________ relationship between trade deficits and federal government budget deficits.

positive

In the long run, a higher government deficit does not affect equilibrium real Gross Domestic Product (GDP), so that continuous increases in the government deficit will

reduce spending on privately provided goods and services.

Net public debt is the

sum of accumulated government deficits and surpluses held by individuals and businesses and foreign institutions.

If the public debt increased by the same amount each year during the past three years, then

the U.S. Treasury must have issued securities to fund a flow of government spending that exceeded a flow of tax revenues by the same amount during each of the past three years.

Other things being equal, during a period when the federal government issues more Treasury securities to borrow funds,

the flow of government expenditures during that period must exceed the flow of tax revenues.

A federal deficit of $300 billion means that

the government is spending $300 billion a year more than it is collecting in taxes.