Macroeconomics Ch. 31

A country that is running a budget surplus will not be in debt. True False

False

Which of the following holds the most U.S. government debt? The Federal Reserve Social Security Foreigners and U.S. citizens U.S. government agencies not including Social Security

Foreigners and U.S. citizens

In what way is government debt like individual debt? Government can pay its debt by printing money. Government never has to pay back its debt. Much of government debt is owed to its own citizens. Inflation reduces the real value of both types of debt.

Inflation reduces the real value of both types of debt.

Government debt is defined as: accumulated deficits plus accumulated surpluses. a shortfall of outgoing payments under incoming revenue. accumulated deficits minus accumulated surpluses. a shortfall of incoming revenue under outgoing payment.

accumulated deficits minus accumulated surpluses.

Debt needs to be judged relative to assets because: assets can increase the ability of a country to repay a debt. all assets provide interest payments to pay the debt. assets are always depreciating. private investment is always more productive than government investment.

assets can increase the ability of a country to repay a debt.

A government can finance its budget deficit by doing all of the following except: printing money. buying bonds. selling bonds. borrowing from its central bank.

buying bonds.

If the federal government has a budget surplus in a given year, the national debt will: increase only if output is below potential output. decrease. remain constant. increase.

decrease.

The budget deficit or surplus is: well defined but frequently distorted by creative but improper accounting practices. difficult to measure and can be defined legitimately in several ways. well defined and straightforward to measure. so arbitrarily defined that it is meaningless.

difficult to measure and can be defined legitimately in several ways.

The structural deficit: falls as the economy expands and rises when it contracts. does not change when income changes, but changes only when potential income changes. changes as actual income changes regardless of potential income. rises as the economy expands and falls when it contracts.

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

The nominal deficit depends primarily on: the rate of inflation. the debt. government's expenditures and receipts. the difference between potential and actual output.

government's expenditures and receipts.

Deficits may be desirable in the short run if they: increase savings necessary for future investment and growth. help to stabilize the economy when the economy falls below potential output. help to stabilize the economy when the economy is above potential output. increase savings necessary for future consumption and demand.

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

If inflation is correctly anticipated, those who buy government bonds will: not suffer losses because inflation does not affect the purchasing power. not lose because the expected inflation built into the nominal interest rate is correct. suffer losses because they will be compensated by lower interest payments. suffer losses regardless of inflation because interest paid on government bonds is set by Congress.

not suffer losses because inflation does not affect the purchasing power.

What makes it possible for a country to maintain a constant debt-to-GDP ratio and still have continual deficits is: positive private savings. real economic growth. continual inflation. trade surpluses.

real economic growth.

Paying interest on internal government debt involves a: net reduction in domestic income. redistribution of income among citizens of the country. net increase in domestic income. redistribution of income to citizens of other countries.

redistribution of income among citizens of the country.

If the national debt increases in any given year, it follows that the government: bought bonds in that year to finance a budget deficit. sold bonds in that year to finance a budget surplus. bought bonds in that year to finance a budget surplus. sold bonds in that year to finance a budget deficit.

sold bonds in that year to finance a budget deficit.

A cyclical deficit is the portion of the deficit that exists when: inflation is fully anticipated. the economy is at potential income. the economy is below potential income. inflation is not fully anticipated.

the economy is below potential income.