Macroeconomics Ch 31

A government budget deficit occurs when government revenues exceed government expenditures.

False

Which of the following holds the most U.S. government debt?

Foreigners and U.S. citizens

Which of the following is a reason why government debt is different from individual debt?

Government can create money to finance its debt.

Which of the following is a reason why government debt is different from individual debt?

Government is ongoing, individuals are not.

Use the following table to determine which statement is true. Year Revenue Government Expenditure 1946 39.3 55.2 1947 38.5 54.5 1948 41.6 29.8 1949 39.4 38.8 1950 39.4 42.6

In 1946 and 1950, the budget was in deficit while from 1948 to 1949, the budget was in surplus.

In what way is government debt like individual debt?

Inflation reduces the real value of both types of debt.

In several years, bondholders may lose confidence in the United States willingness to pay back funds.

True

Over the past five years, most countries' debt-to-GDP ratios have risen as a result of the global recession.

True

The real deficit is the nominal deficit adjusted for inflation's effect on existing debt.

True

Paying interest on external government debt rather than on domestic debt produces:

a net reduction in domestic income.

A budget deficit is defined as:

a shortfall of revenues compared to expenditures.

Deficits and surpluses are best viewed as:

a summary measure of a nation's fiscal policy.

Government debt is defined as:

accumulated deficits minus accumulated surpluses.

In the long-run framework, budget surpluses:

are better than budget deficits over the long run because unlike budget deficits, they increase saving and investment.

In the short-run framework, budget deficits should:

be run on a temporary basis whenever the economy is below potential output.

If the debt of the federal government increases by $10 billion in one year the budget:

deficit in that year must be $10 billion.

External government debt is:

government debt owed to individuals in foreign countries.

One of the reasons government debt is different from individual debt is:

government never really needs to pay back its debt.

Deficits may be desirable in the short run if they:

help to stabilize the economy when the economy falls below potential output.

During World War II, the economic recession that reduced equilibrium income below potential income in most European countries:

increased the cyclical deficit.

In the long-run framework, deficits reduce:

investment.

If inflation is correctly anticipated, those who buy government bonds will:

not suffer losses because they will be compensated by higher interest payments.

When the economy is operating close to potential, the budget deficit experienced is:

primarily structural.

If the national debt increases in any given year, it follows that the government:

sold bonds in that year to finance a budget deficit.

Debt is measured relative to GDP because:

the ability of a country to pay off its debt depends on its productive capacity.

A cyclical deficit is the portion of the deficit that exists when:

the economy is below potential income.

The real deficit is the nominal deficit adjusted for changes in:

the general price level.

According to some economists, when a country's debt-to-GDP ratio exceeds 90 percent:

the government will face financial instability

Deficits and debt are often measured relative to GDP because:

the government's ability to repay the debt depends on GDP.

Debt service refers to:

the interest payments a country makes on its debt each year.

Economists who focus on the need for fiscal austerity tend to focus on

the long run

An increase in the U.S. national debt would be.

unsustainable if U.S. GDP grew at a slower rate than the debt.

The structural deficit:

does not change when income changes, but changes only when potential income changes.

A policy of fiscal austerity could have difficulty lowering the debt-to-GDP ratio because it might:

lower both GDP growth and government revenue.

What are the two ways government can finance a budget deficit?

sell bonds print money

When the government runs a deficit, it will:

sell bonds to finance the deficit.

Budget deficits contribute to higher debt.

True