Chapter 6 Econ

The federal government maintains its debt by: a. borrowing money from lenders. b. taxing businesses and households. c. selling government-owned properties. d. reducing its purchases of goods and services

a

The size of the national debt increases when the federal government runs a: a. deficit budget. b. surplus budget. c. balanced budget. d. contractionary budget

a

Which of the following is true? a. The current U.S. national debt is over $9.5 trillion. b. The national debt increases in size whenever the federal government runs a surplus budget. c. The national debt increased throughout the 1980s, but has decreased since the early 1990s. d. Over 75 cents of every dollar that the federal government spends is for interest on the national debt.

a

A government security which matures in two to ten years from its date of issuance is a U.S. Treasury: a. bill. b. note. c. bond. d. stock

b

If the entire national debt were paid off at one time: a. the effect on the economy would be expansionary. b. the effect on the economy would be contractionary. c. there would be no effect on the economy because the paid-off debt holders would spend their money on new goods and services. d. there would be a flow of funds into the United States as foreign governments tried to borrow from the recently paid off debt holders

b

One effect of the federal government's borrowing may be to drive private borrowers like businesses and households out of the market for loans. This is: a. called Government Preemption. b. due to the effect of government borrowing on interest rates. c. because foreign lenders refuse to make loans to private borrowers once the government enters the market for loans. d. all of the above.

b

To pay off the national debt, the federal government would have to run a series of: a. deficit budgets. b. surplus budgets. c. balanced budgets. d. any of the above could be used to pay off the national debt

b

Which of the following statements is correct? a. The national debt is too large. b. Whether or not the national debt is too large is a value judgment. c. The national debt could become much larger without having any adverse effect on the economy. d. Based on the success the U.S. economy has enjoyed in recent years, the national debt is exactly the right size

b

The national debt: a. doubled between 1950 and 1975, and doubled again between 1975 and 2008. b. doubled between 1950 and 1975, and by 2005 it was over fourteen times its size in 1975. c. was four times larger in 1975 than it was in 1950, and then doubled between 1975 and 2005. d. stayed at approximately the same amount between 1950 and 1975, and doubled between 1975 and 2005.

b (doubled since 2008)

Paying off the entire national debt at one time would: a. have no effect on the economy. b. cause a massive inflow of money from other countries. c. transfer income from taxpayers to holders of government securities. d. force the government to run large deficit budgets to get the funds for the payment

c

One of the costs of the national debt is the amount of interest paid to maintain the debt. All other things being equal, interest payments on the debt will fall if: a. interest rates fall. b. the total debt declines. c. the federal government runs a surplus budget. d. all of the above.

d

Paying off the entire national debt would: a. cause dollars to leave the U.S. b. have a contractionary effect on the economy. c. tend to benefit persons in upper income groups. d. all of the above

d

The largest portion of the national debt is held by: a. foreign governments. b. Federal Reserve Banks. c. the federal government. d. private domestic and foreign investors such as individuals, banks, and corporations.

d

The national debt should NOT be paid off quickly because of: a. the surplus budgets required to pay off the debt. b. the outflow of funds to pay foreign holders of the debt. c. the redistribution of income resulting from paying off the debt. d. all of the above are reasons not to pay off the debt quickly.

d

When the federal government borrows money: a. it publicly announces the amount it intends to raise. b. it borrows from those lenders that offer funds at the lowest interest rates. c. potential lenders submit applications stating how much they are willing to lend, and at what rates. d. all of the above.

d

Which of the following statements is true? a. The U.S. national debt is about $3.0 trillion. b. Most of the national debt is held by foreign investors. c. Treasury bills are long-term securities that mature in ten or more years. d. Approximately 15 cents of every dollar that the federal government spends is for interest on the national debt

d (30 cents now)

To pay off the national debt by 2010, every man, woman, and child in the United States would have had to contribute close to: a. $32.00. b. $320.00. c. $3,500.00. d. $32,000.00.

d (60000 today)

From the 1980s through 2009, the national debt as a percentage of GDP: a. increased. b. fell and then increased. c. increased and then fell. d. increased, fell, and then increased again

d

Which of the following is closest to the burden of the national debt as for a family of four in 2010? a. $120. b. $1,200. c. $12,000. d. $120,000.

d (over 200000 today)

A U.S. Treasury bill matures: a. on demand by its holder. b. in less than one year from its date of issue. c. two to ten years from its date of issue. d. ten years or more from its date of issue.

b

A U.S. Treasury bond is: a. purchased by both U.S. and foreign investors. b. a government security that matures in 30 years. c. used to finance government borrowing to cover deficit spending. d. all of the above.

b

Crowding out occurs when government borrowing reduces: a. savings by households and businesses. b. borrowing by households and businesses. c. income-determined spending by households and businesses. d. all of the above.

b

The interest cost of maintaining the national debt is referred to as: a. debt loss. b. debt service. c. interest penalty. d. interest adjustment

b

The total accumulated debt of the federal government due to deficit spending is called the: a. surplus debt. b. national debt. c. Congressional debt. d. deficit spending debt

b

Which of the following statements about crowding out is FALSE? a. It results when the government runs deficit budgets. b. It stimulates economic growth by directing funds to the government. c. It results from the interest rate sensitivity of households and businesses. d. It occurs when borrowing by the government reduces borrowing by households and businesses.

b

A main concern about the crowding out of private borrowing by increased federal government borrowing is: a. the government may default on its loans. b. increased federal government borrowing makes it difficult for foreign lenders to find borrowers in the U.S. c. economic growth may be limited because businesses cannot afford to borrow to buy the machinery and equipment needed for growth. d. Treasury securities issued by the government when it borrows are riskier than corporate bonds issued by businesses when they borrow

c

If U.S. government securities are arranged from the shortest to the longest time to maturity, which of the following is the correct order? a. Treasury bond, Treasury bill, Treasury note. b. Treasury bond, Treasury note, Treasury bill. c. Treasury bill, Treasury note, Treasury bond. d. Treasury note, Treasury bond, Treasury bill.

c

The majority of the federal debt is financed by: a. the sale of government properties. b. unsecured loans from major banks. c. the sale of treasury securities to private domestic and foreign investors. d. the sale of treasury securities to the Federal Reserve and other government agencies.

c

The national debt is the: a. debt owed to foreign creditors by the government sector. b. difference between current government revenues and expenditures. c. total accumulated debt of the federal government due to deficit spending. d. total accumulated debt of the household, business, and government sectors of an economy.

c

By 2009, the national debt was equal to approximately: a. 7 percent of GDP. b. 17 percent of GDP. c. 70 percent of GDP. d. 700 percent of GDP

c (105 today)

The national debt by 2010 was closest to which of the following: a. $1 trillion. b. $2 trillion. c. $7 trillion. d. $10 trillion.

c (20 trillion today)

According to Application 6.3, "U.S. Treasury Securities": a. interest on these securities is paid every six months. b. once a treasury security is issued to one person, that person cannot resell the security to anyone else. c. U.S. Treasury securities are generally regarded as unsafe investments because the government is so deeply in debt. d. all of the above

a

Crowding out of private borrowing as a result of increased federal government borrowing occurs because: a. increased government borrowing drives up the interest rates on borrowed funds. b. interest rates on investment opportunities fall as government takes over more high-yielding projects. c. the government is interest-rate sensitive in its borrowing decisions, whereas households and businesses are not. d. the government borrows to take advantage of investment opportunities that otherwise would have attracted private borrowers

a

Paying off the national debt would cause: a. an outflow of dollars from the U.S. b. a flow of payments from government bondholders to taxpayers. c. a flow of payments from state and local governments to the national government. d. all of the above.

a

Treasury inflation-protected securities, or TIPS, are: a. U.S. Treasury securities with face values that rise when the economy experiences inflation. b. U.S. Treasury securities that investors can buy at higher prices when the economy experiences inflation. c. bonds issued by private businesses that can be sold to the government at higher prices when the economy experiences unemployment. d. none of the above.

a

Which of the following is NOT a problem caused by a large national debt? a. The entire debt must be periodically paid off, which causes recessions. b. Future generations may be burdened with large interest payments on current government borrowing. c. Borrowing by the federal government might lead to reduced borrowing by households and businesses. d. There is an opportunity cost of forgone spending on education, the environment, and other federal programs when tax dollars are used to pay interest.

a

Which of the following would reduce the level of the national debt? a. Run a surplus budget. b. Balance the federal budget. c. Cut government expenditures and raise taxes to reduce a budget deficit from $120 billion to $60 billion. d. All of the above would reduce the level of the national debt.

a