ECON202 Chapter 12

Which of the following correctly describes factors that contributed to the change in the federal budget deficit between 1990 and 1998?

Taxes were raised, spending was cut, productivity rose, consumer spending increased, the stock market was the strongest in history, and the country experienced a short-lived budget surplus.

Identify a statement that is true about national debt.

The national debt ignores the projected liabilities of Social Security, Medicare, and other healthcare entitlements or other federal retirement programs.

When budget deficits during recessions are covered by budget surpluses during expansions, then it is termed:

a cyclically balanced budget

The debt ceiling is:

a limit on the total amount of money the federal government can legally borrow.

A disadvantage of functional finance is that it:

allows chronic deficits that magnify into national debt, allowing it to reach an alarming level.

Other things remaining constant, higher market interest rates in the United States will result in:

an appreciation of the dollar relative to foreign currencies.

Other things remaining constant, higher trade deficits in the United States will lead to:

an increase in funds from abroad.

Federal deficits amounted to 3.5 percent of the U.S. GDP by 2003 because of:

an increase in the cost of fighting the war against terrorism.

According to the crowding out effect, _____ in an economy.

an increase in the federal deficit decreases the supply of national saving

According to the crowding in effect, _____ in an economy.

an increase in the federal deficit decreases the supply of national saving and encourages private investment

A likely consequence of debt default is:

an increase in unemployment due to growing uncertainty.

An _____ is a budget philosophy that was followed prior to the Great Depression, and aimed at matching annual revenues with outlays, except during war time.

annually balanced budget

When real GDP is _____ potential output, _____ fiscal policy designed to move real GDP to the economy's potential output level will tend to make a federal budget deficit larger.

below; expansionary

Continuing resolutions are:

budget agreements that allow agencies, in the absence of an approved budget, to spend at the rate of the previous year's budget.

A _____ is a congressional agreement about total outlays, spending by major category, and expected revenues, which guides spending, and revenue decisions by the many congressional committees and subcommittees.

budget resolution

A higher government deficit that stimulates private investment in a weak economy is called:

crowding in.

A surplus federal budget, in the short run, _____.

dampens aggregate demand but boosts domestic saving

Automatic stabilizers:

decrease public outlays during expansions because tax revenues increase.

The Great Recession of 2007-2009 and the financial crisis of 2008 increased the budget deficit because of:

discretionary tax cuts and greater outlays on unemployment benefits.

If the government borrowed funds are invested more in _____, then it would improve labor productivity and the nation's future standard of living.

educating the workforce

One of the reasons deficits persist is that:

elected officials try to maximize political support by focusing on spending programs and cutting taxes.

A(n) _____ provides guaranteed benefits for those who qualify under government transfer programs such as Social Security or Medicare.

entitlement program

The budget of a country is said to be in surplus when:

federal revenues exceed outlays.

A budget philosophy using fiscal policy to achieve the economy's potential GDP, rather than balancing budgets either annually or over the business cycle, is termed:

functional finance.

Interest payments in the United States increased during the 1980s because of:

growing federal deficits.

The federal budget:

has a congressional gestation period of about 9 months.

An increase in government investment in public capital will lead to a(n):

increase in capital formation.

The federal budget surplus recorded in 1998 resulted from a(n):

increase in taxes and sluggish growth in federal outlays.

Foreign ownership of debt has:

increased the burden of the debt on future generations of Americans absolutely and relatively.

The national debt:

is a stock variable measuring the net accumulation of past deficits.

Unlike the federal government, state governments _____.

issue debt to fund capital projects, such as schools and infrastructure

The problem with a detailed budget is that:

it reduces the flexibility of discretionary fiscal policy.

A major problem with the implementation of an annually balanced budget is that it:

magnifies the fluctuations in the business cycle.

Deficits during wars prior to the Great Depression were largely self-correcting because:

military spending dropped after a war, but tax revenue did not.

Simplifying the budget documents by concentrating only on major groupings and eliminating line items would:

prevent elected officials from including projects they prefer for their personal gains in the budget.

In the short-run, a federal budget deficit will most likely _____.

reduce national saving

Twin deficits refer to:

simultaneous federal budget deficits in the federal budget and the current account.

One way to measure national debt over time is debt relative to:

the economy's production and income.

A spike in "All Other Outlays" of the federal government in 2009 was due to:

the fiscal stimulus package passed earlier that year.

The national debt is _____ of federal budget deficits.

the net accumulation

Researchers believe that the economy grows at least one percentage point less annually when:

the ratio of public debt to GDP exceeds 90 percent for at least five years in a row.

The national debt in the United States:

was a considerably larger percentage of GDP during World War II and the years immediately following the World War.

A biennial budget:

would encourage Cabinet members to focus more on running their agencies rather than being involved in budget deliberations.

Which of the following will possibly cause a decrease in the interest payments made by the federal government?

A budget surplus.

Which of the following correctly describes the relationship between private-sector spending and the federal budget?

A decline in private-sector spending triggers automatic stabilizers that result in a federal budget deficit.

Government spending shrank the most in _____, relative to GDP, between 1997 and 2016.

Canada

Which of the following countries owned 20 percent of foreign-held U.S. debt as of February 2015?

China.

Which of the following represents a problem with the federal budget process in the United States?

Congress has only limited control over much of the budget, because most budget outlays are determined by existing laws.

Which of the following statements is true?

Federal budget deficits became progressively smaller during the 1990s and turned into a surplus by 1998.

Which of the following correctly describes the trend in the federal budget during the 1980s?

Federal spending rose relative to GDP, while federal revenues declined relative to GDP.

_____ in the United States relative to GDP increased from 37 percent in 1994 to 40 percent in 2013.

Government outlays

_____ in the United States relative to GDP between 1997 and 2016.

Government outlays increased

Government outlays, relative to GDP, grew the most in _____ between 1997 and 2016.

Japan

Which of the following countries has the largest projected net debt as a percentage of their GDP for 2015?

Japan.

Which of the following constituted the majority of federal outlays in 2016?

Social Security and Medicare.

Which of the following correctly describes crowding out?

The displacement of interest-sensitive private investment that occurs when increased government deficit spending drives up interest rates.

The budget of a country is said to be in surplus when:.

The federal budget is a plan for federal government outlays and revenues for a specified period, usually a year.

Which of the following statements is true?

The interest payments on federal debt as part of federal outlays will climb as debt grows and as interest rates rise.

As a result of the global financial crisis in 2008, _____.

U.S. interest rates fell and the cost of servicing U.S. debt decreased