Chapter 14 Review Questions

In 2015, government spending is $2.9 trillion, and taxes collected are $2.1 trillion. What is the federal government deficit in that year?

0.8 trillion

The net public debt is equal to

Gross government debt minus all government interagency borrowing

If the federal government runs a "budget deficit", public debt will (increase, decrease or stay the same) ?

If the federal government runs a "budget deficit", public debt will Increase

If the federal government runs a "budget surplus", public debt will (increase, decrease or stay same)?

If the federal government runs a "budget surplus", public debt will Decrease

Total Government Debt is the :

Sum of all of the deficits that government has run over time (less any repayments during surplus years)

Are federal budget deficits related to trade deficits?

Yes. As deficit spending goes up, it is likely that government borrowing will too, and foreign residents who lend funds to the U.S. government now have fewer resources to spend on U.S. export goods.

Generally a larger US trade deficit is accompanied by a

a larger US federal government budget deficit

The difference between net public debt and gross government debt is

all government interagency borrowing.

As the interest rate or yield on U.S. bonds increases, foreigners

buy more U.S. bonds and fewer U.S. goods and services

If the federal government has a budget deficit it can finance its spending by

selling treasury bonds

A trade deficit implies that

the dollar value of imports exceeds the dollar value of exports.

Who lends the U.S. all this debt ?

A.U.S. investors who purchase U.S. Treasury Securities B.Foreign investors and governments who purchase U.S. Securities D.Both A & B

Which of the following is a reason why the public debt may impose a burden on future generation?

Government borrowing to finance the debt may drive up interest rates, crowding out investment and consumption

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.

The U.S federal government has contemplated ways to reduce its national debt. Which of the following suggestions would best enable the government to achieve this goal?

Reduce government spending, raise taxes, or both

So How are Government Budget Deficits Financed i.e. where do they get the money ?

The federal government finances a budget deficit by borrowing funds

In 2016, the government spent $3.9 trillion and taxes collected were $3.3 trillion. Did the federal government run a budget deficit, surplus or a balanced budget in 2016?

The federal government ran a $0.6 trillion deficit in 2016?

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.