ECON 105 Chapter 17

"crowding out" refers to federal government deficits financed by:

borrowing which increases interest rates and thereby reduces private spending

Crowding out occurs when the federal government:

borrows by selling bonds to finance a deficit

If the crowding-out effect is strong, how will the potency of discretionary fiscal policy be affected?

It will make fiscal policy less potent

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

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.

If the federal government runs a budget _____, then the national debt becomes ______.

surplus, smaller

The national debt is:

the cumulative effect of all budget deficits and surpluses of the federal government

Given the information in Exhibit 17-1, which of the following statements is correct?

the national debts of Canada, Spain and United States increased in 2016

When the U.S. federal government runs a budget deficit, it borrows money by selling:

treasury bills, notes, and bonds

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

treasury bonds held by private investors

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

treasury bonds held by private investors

"Crowding in" refers to federal government deficits:

which lead to increase in private sector spending

Supply-side economists argue that less government spending:

would make more investment capital available at lower rates of interest to the private sector

"Crowding out" is the theory that an increase in our federal government's budget deficit will likely:

decrease borrowing by households and businesses

If the national debt rises to the debt ceiling and there is currently a budget ________, the Congress and the President must agree to ________ the debt ceiling or else the federal government will have insufficient funds to pay its bills and will be forced to shut down.

deficit, raise

How does inclusion of the current revenues and expenditures of the Social Security trust fund into the budget calculation affect the reported budget deficit of the federal government when the trust fund experiences a surplus?

it reduces the reported deficit

When crowding out occurs, higher government spending results in higher interest rates, which in turn result in:

less consumption and investment

A concern about crowding out caused by increased government borrowing is that:

lower rates of economic growth can result from a decline in business investment spending

The national debt is unlikely to cause national bankruptcy because the:

national debt can be refinanced by issuing new bonds

If the federal government runs a budget deficit, but the budget deficit as a percent of GDP is less than the growth rate of real output, the:

national debt will decrease as a share of GDP

Most of the U.S. national debt is owed to ____. Thus a rising national debt implies that there will be a future redistribution of income and wealth in favor of ____.

other U.S. citizens; bondholders

Which of the following owns the largest proportion of the national debt?

private individuals, banks, and corporations

If the economy is at full employment:

Crowding out is complete

If the fiscal year begins without a budget and Congress fails to pass continuing resolution then:

the federal government shuts down

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:

---only the privattely held debt creates a net interest liability for the federal government.--- ---the government will not have to repay the privately held debt--- ---the privately held debt does not create a net interest liability for the federal government

According to the crowding-out view, budget deficits will:

increase interest rates and retard private investment

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

increase the size of the national debt

Currently, the national debt is approximately:

105 percent of GDP

One concern over external national debt is that interest and principal payments transfer wealth overseas. The percentage of the national debt held in recent years by foreigners is approximately:

30 percent

Which of the following statements is true?

Deficits are financed by the government issuing for sale more government securities

Which of the following is a valid concern about federal budget deficits?

If the increases in the national debt reduce private expenditures on capital formation, aggregate demand is reduced

Which of the following statements about crowding out is false?

It affects interest rates and not economic growth

Given the information in Exhibit 17-1, which of the countries shown was closest to balancing its budget?

Latvia

The federal budget process beings when federal agencies submit their budget requests to the:

Office of Management and Budget (OMB)

Supply-siders feel that high levels of government spending:

cause private sector investment to decline because of crowding out

If Congress fails to pass a budget before the fiscal year starts, then federal agencies may continue to operate only if Congress has passed a:

continuing resolution

The idea that a large national debt is "mortgaging in the future of our children and grandchildren" is misleading because:

future generations will inherit the interest income as well as the interest obligations

The crowding-out refers to:

higher interest rates and reduced private spending that results from financing federal budget deficits