chapter 14
Which of the following statements is true when considering budget deficits and the national debt?
The national debt is a stock variable and a federal budget deficit is a flow variable.
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.
Since 1970 the U.S. government's budget deficit as a percentage of real GDP has
averaged approximately 3%
In 2005 national government spending is $3.00 trillion and tax collections are $2.50 trillion. This government, in 2005, experienced a
budget deficit
Since 2001, the average annual government budget deficit has exceeded 10 percent of GDP.
false
Smaller trade deficits tend to accompany larger government budget deficits.
false
The net interest cost of the public debt as a percentage of GDP has continually risen since 1940.
false
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
The accumulation of borrowing by all federal government agencies is referred to as the
gross public debt
In the long run, higher government budget deficits resulting from increased government spending and/or tax cuts will do all of the following except
increase equilibrium real GDP
If the economy is operating at full employment and the federal government increases its borrowing,
investment will be crowded out
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
If the rate of return on public investments exceeds the interest rate paid on the bonds issued to finance the investments,
present and future generations will be economically better off
Since the 1940s, more often than not, the U.S. federal government has
run a budget deficit
If the federal government has a budget deficit it can finance its spending by
selling Treasury bonds
When considering the gross public debt, one can argue that it is overstated because
the federal government owes itself money
In the presence of a short-run recessionary gap, government deficit spending can influence both real GDP and employment.
true
The net public debt has continually risen since the year 2000.
true
From the end of WWII through 1983 the U.S. government had consistently experienced
a trade surplus
Imagine that the net public debt of a country's government was currently $6 trillion. The debt was entirely held or owned by the citizens of that country. In other words, there is no external debt. If the government were to pay off the entire $6 trillion of debt today by the use of taxes, which of the following statements is true?
Both of these statements are true
Which of the following is a reason for this resurgence in federal government budget deficits?
Tax revenue not keeping pace with growth in spending
Which of the following statements is true when considering the expenditures of the U.S. federal government?
The expenditures are used for all these purposes
The federal government has its best opportunity to lower its national debt when it has
a budget surplus
It may be argued that the effects of a higher public debt are the same as the effects of a higher deficit because
a higher deficit creates a higher public debt
Generally a larger US trade deficit is accompanied by a
a larger US federal government budget deficit
Suppose the federal government wishes to purchase goods and services valued at $200 billion today and finances these expenditures by raising taxes. According to some economists, this will lead to _____________ level of national consumption and ________________ level of national savings than if the expenditure had been financed by selling bonds (borrowing).
a lower; a higher
Whenever the federal government spends more than it receives during a given year, it operates with a ________________. If federal government spending exactly equals government revenues, then the government experiences a ______________________. If the federal government collects more revenues than it spends, then it operates with a ______________.
budget deficit; balanced budget; budget surplus
When we subtract the funds that government agencies borrow from each other from the _____________ public debt, we obtain the _____________ public debt.
gross; net
Since 2001, more often than not, the U.S. federal government has
run a budget deficit
Other things equal, interest rates will ________ whenever there is ________ in deficits financed by an increase in borrowing.
rise; an increase
If a government spends more than it receives during a year, then during this year it experiences a ________, and if it spends less than it receives, it experiences a ________.
budget deficit; budget surplus
If foreigners have an excess supply of dollars after trading goods and services they will likely
buy more U.S. Treasury bonds
As the interest rate or yield on U.S. bonds increases, foreigners
buy more U.S. bonds and fewer U.S. goods and services
The federal budget deficit is a flow, whereas accumulated budget deficits represent a ____________, called the public debt.
stock
The federal budget deficit expressed as a percentage of GDP rose to around 6 percent in the early 1980s. Between 1998 and 2001, the federal government experienced a budget _________________, but since then its budget has once more been in ________________.
surplus; deficit
A trade deficit implies that
the dollar value of imports exceeds the dollar value of exports
A natural consequence of the government continually spending more than what it takes in through tax receipts, ceteris paribus, is that
the government takes up a larger percentage of the economic activity
The total value of all outstanding federal government securities is
the public debt
More than 50 percent of U.S. public debt is owned by foreign residents.
true
