CH 14 HW/ Quiz
HW
20 Qs
According to your text, the net public debt to Gross Domestic Product (GDP) ratio is currently about
60 %
If the U.S. federal government operates with a budget deficit it must borrow. In order to entice people to lend money to finance this deficit, the U.S. government must
Pay a higher rate of interest on the bonds it sells A higher interest rate or yield makes the purchase of Treasuries more competitive relative to other assets.
From the end of WWII through 1983 the U.S. government had consistently experienced
a trade surplus
Use the figure to help determine which of the following statements are true. graphhhhh
1998-2001 are the only years that the U.S. federal government recorded surpluses. The graph below shows the U.S. trade deficit (surplus) for the 1970-2005 period. As shown by the graph, the only years in which the U.S. federal government experienced surpluses were between 1998 and 2001. This was accomplished when the Clinton administration cooperated with a republican Congress to reduce the large and many federal budget deficits.
The federal government has its best opportunity to lower its national debt when it has
A budget surplus
To eliminate the deficit (and halt the growth of the net public debt), a politician suggests that "we should tax the rich." Suppose the politician defines "the rich" as people with annual taxable incomes exceeding $1 million per year. Given "the rich" rarely earn a combined taxable income exceeding $1 trillion, yet the federal deficit has regularly exceeded $1 trillion in recent years, which of the following must be true?
A. To eliminate the deficit, government spending must be reduced. B. If government spending is not reduced, taxes on the middle class must be increased in order to eliminate the deficit. C. The deficit cannot be eliminated just by taxing "the rich."
As the interest rate or yield on U.S. bonds increases, foreigners
Buy more U.S. bonds and fewer U.S. goods and services They act as substitutes, the U.S. exports of goods and services and US bonds.
If foreigners have an excess supply of dollars after trading goods and services they will likely
Buy more US treasury bonds Since foreigners have not spent all the dollars they received from their exports on US goods and services they are holding an excess supply of dollars.
If foreign residents desire to purchase the bonds, what is the most important source of dollars to buy them?
Dollars used to purchase U.S. exports
Use the figure to help determine which of the following statements are true.
Federal U.S. gross and net debt to GDP ratios follow similar patterns. Although the difference between the two was very small during the World War II years, it has been steady from the early 1950's to the late 1980's, and has been increasing since the late 1980's. Therefore, the percentage of U.S. federal debt held by federal government agencies compared to the total public debt outstanding has been increasing, starting in the early 1990's. explanation: The graph below shows the U.S. gross and net federal debt to GDP ratios for 1940-2005. As shown by the graph, these two series follow a similar pattern, with U.S. gross federal debt exceeding net federal debt. In fact, during recent years the difference between the two series has grown indicating that the percentage of federal debt held by federal government agencies has grown relative to the amount of debt held by the total public.
Suppose the dollar value of imports to the U.S. exceed the dollar value of exports from the US. This implies that
Foreigners are holding an excess supply of dollars Since foreigners have not spent all the dollars they received from their exports on US goods and services they are holding an excess supply of dollars.
The net public debt is equal to
Gross government debt minus all government interagency borrowing
The accumulation of borrowing by all federal government agencies is referred to as the
Gross public debt The gross public debt includes borrowing of all federal government agencies.
Suppose that the share of U.S. GDP going to domestic consumption remains constant. Initially, the federal government was operating with a balanced budget, but this year it has increased its spending well above its collections of taxes and other sources of revenues. To fund its deficit spending, the government has issued bonds. So far, very few foreign residents have shown any interest in purchasing the bonds. What must happen to induce foreign residents to buy the bonds?
Interest rate must rise
Generally a larger US trade deficit is accompanied by a
Larger US federal government budget deficit The larger trade deficit allows the U.S. to borrow more from foreigners.
In long-run macroeconomic equilibrium, after the economy has fully adjusted to changes in all factors, the effect of an increased government budget deficit resulting from higher government spending or lower taxes is
No change in equilibrium real GDP, and a redistribution of real GDP from
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. By reducing government spending, it is plausible the government may be able to achieve a budget surplus.
Which of the following is a reason for this resurgence in federal government budget deficits?
Tax revenue not keeping pace with growth in spending. Due to this, tax revenues have not kept up with increased spending.
What happens to the net public debt if the federal government operates next year with a budget deficit?
The Net public debt will increase
Use the figure to help determine which of the following statements are true.
The U.S. net federal debt to GDP ratio has been, for the most part, decreasing since the end of World War II, despite the fact that the U.S. economy was expanding and could afford a larger debt to GDP ratio. ???
A trade deficit implies that
The dollar value of imports exceeds the dollar value of exports The trade deficit is defined by the dollar value of imported goods and services exceeding the dollar value of exported goods and services.
When considering the gross public debt, one can argue that it is overstated because
The federal government owes itself money Interagency borrowing inflates the debt. It is like your right hand owing your left hand $10.
Which of the following statements is true regarding the national debt and federal government deficits?
There is a positive relationship between the national debt and a federal government budget deficit. They move together in the same direction.
If the government has no debt initially, but then has annual revenues of $10 billion per year for 4 years and annual expenditures of $10.5 billion per year for 4 years, then the government has
a budget deficit of $0.5 billion per year and a debt of $2 billion at the end of the 4 years.
Suppose the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the long run?
a recessionary gap
A government balanced budget
a situation in which the government's spending is exactly equal to the total taxes and other revenues it collects during a given time period.
The plotted series show that while there were a few small sub-periods during which the two deficits moved in opposite directions, the two deficits exhibit co-movement. The positive relationship between the US government budget and trade deficits is supported because large U.S. government deficits are mainly financed through increases in government debt (bonds). This results in higher U.S. interest rates which in turn attract capital to the U.S. This in turn causes
an appreciation of the U.S. dollar. Dollar appreciation makes U.S. exports more expensive and U.S. imports cheaper, and thus, a larger U.S. trade deficit. The graph below shows the twin deficits of the U.S. - the federal budget deficit (surplus) and the trade balance deficit (surplus). As the graph shows, for most of 1970-2004 time period, the government and trade deficits move together.
In each of the past few years, the federal government has regularly borrowed funds to pay for at least one-third of expenditures that tax revenues were insufficient to cover. More than 60 percent of all federal expenditures now go for entitlement spending. This fact implies that the government is paying for most of its discretionary expenditures
by borrowing
The two ways in which deficit spending can impose a burden on future generations are
by requiring future generations to face higher taxes and to work with a lower accumulated stock of capital goods.
Until recently, the federal government has been operating with a very small annual budget surplus. Now Congress has eliminated several expenditure programs that it has decided wasted funds provided by taxpayers. The net public debt
decreases
Previously, the government operated with a balanced budget, but recently there has been a sudden increase in federal tax collections. The net public debt
decreases
The fastest growing component of the annual federal budgets since 2000 is
entitlement payments.
The difference between the gross public debt and the net public debt is that the
gross public debt includes government interagency borrowing while the net public debt does not.
According to the figure, the U.S. federal government graphhhhhh
has generated far more deficits than surpluses during the period 1940-2005. The graph below plots U.S. federal expenditures and receipts in billions of constant 2000 dollars for the years 1940-2005. As shown by the graph, expenditures are usually larger than receipts, indicating that the U.S. government has generated more deficits than surpluses during the period 1940-2005.
The federal government had been operating with a very small annual budget deficit until three successive hurricanes hit the Atlantic Coast, and now government spending has risen substantially. The net public debt
increases
Previously, the government operated with a balanced budget, but there has been a drop in personal incomes and a corresponding decrease in individual income tax collections. The net public debt
increases
What happens to the net public debt if the federal government operates next year with a budget surplus?
it decreases
What happens to the net public debt if the federal government operates next year with a balanced budget?
it remains the same
Since 1940, the U.S. government has experienced
many more budget deficits than budget surpluses
Entitlements in the U.S. are
non-discretionary expenditures that have been legislated by Congress
Suppose that the Office of Management and Budget provides the accompanying estimates of federal budget receipts, federal budget spending, and GDP, all expressed in billions of dollars. Calculate the implied estimates of the federal budget deficit as a percentage of GDP for each year.
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The General National Mortgage Association, a federal government agency that purchases certain types of home mortgages, buys U.S. Treasury bonds from another government agency. The net public debt
remained unchanged
Using funds raised from issuing bonds to another government agency, the U.S. Treasury decides to buy back bonds that it had issued three years ago to a different government agency. The net public debt
remains unchanged
Since 2001, more often than not, the U.S. federal government has
run a budget deficit. We have experienced budget deficits since 2002.
If the federal government has a budget deficit it can finance its spending by
selling Treasury bonds. Federal government borrowing is conducted through Treasury bonds.
To eliminate the deficit (and halt the growth of the net public debt), a politician suggests that "we should tax the rich." The politician makes a simple arithmetic calculation in which he applies the higher tax rate to the total income reported by "the rich" in a previous year. He says that this is how much the government could receive from increasing taxes on "the rich." This argument has been proved wrong because of all the following statements, except
that taxing "the rich," since they have higher earnings, is the answer to solving the problem of a growing deficit.
If the public debt increased by the same amount each month during the past three months, then
the U.S. Treasury must have issued securities to fund a flow of government spending that exceeded a flow of tax revenues by the same amount during each of the past three months.
Which of the following is the definition of the public debt?
the total value of all outstanding government securities
A trade surplus occurs when
the value of imports is less than the value of exports. consumption is greater than disposable income. government spending is less than total tax revenue. None of the above.^^^^
