Unit 6 Assignment

T/F: As a percentage of GDP, the total U.S. public debt is the highest such debt among the world's advanced industrial nations.

False

T/F: The total public debt is more relevant to an economy than the public debt as a percentage of GDP.

False

T/F: An internally held public debt is like a debt of the left hand owed to the right hand.

True

T/F: The portion of the U.S. debt held by the public (and not by government entities) was larger as a percentage of GDP in 2015 than it was in 2000.

True

What are the two ways to measure the public debt? - Its relative dollar size and its relative size as a percentage of GDP. - Its average dollar size and its relative size as a fraction of GDP. - Its absolute dollar size and its relative size as a percentage of GDP. - Its real dollar size and its relative size as a multiple of GDP.

Its absolute dollar size and its relative size as a percentage of GDP.

Y/N: During the recession of 2007−2009, the U.S. federal government's tax collections fell from about $2.6 trillion down to about $2.1 trillion while GDP declined by about 4 percent. Does the U.S. tax system appear to have built-in stabilizers?

Yes

A sudden recession is recognized by politicians, but it takes many months of political deal making before a stimulus bill is finally approved. - recognition lag - administrative lag - operational lag

administrative lag

An internally held debt is one in which the - funds are spent on domestic projects. - bondholders are citizens of other nations. - bondholders are the ones receiving the payments. - bondholders live in the nation having the debt.

bondholders live in the nation having the debt.

Expectations of a near-term policy reversal weaken fiscal policy because - people tend to make decisions based on pre-tax income. - interest rates will usually rise, offsetting any change in fiscal policy. - tax cuts are combined with spending increases so there is no real effect. - consumers may hesitate to increase their spending because they believe that tax rates will rise again.

consumers may hesitate to increase their spending because they believe that tax rates will rise again.

The problem of time lags in enacting and applying fiscal policy is that - there are offsetting circumstances that can occur in the private market. - discretionary fiscal policy only works in particular economic situations. - in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed. - for a policy to have its full effect on the economy, it must be enacted in three months; however, it usually takes longer.

in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed

Paying off an externally held debt - may lower the dollar exchange rate. - would allow U.S. citizens to buy products or other assets abroad. - would keep the proceeds in the domestic economy. - would improve the distribution of income.

may lower the dollar exchange rate.

Paying off an internally held debt would - involve selling government bonds. - lower the dollar exchange rate. - improve the distribution of income. - not burden the economy as a whole.

not burden the economy as a whole.

To fight a recession, Congress has passed a bill to increase infrastructure spending—but the legally required environmental-impact statement for each new project will take at least two years to complete before any building can begin. - recognition lag - administrative lag - operational lag

operational lag

To fight a recession, the president orders federal agencies to get rid of petty regulations that burden private businesses—but the federal agencies begin by spending a year developing a set of regulations on how to remove petty regulations. - recognition lag - administrative lag - operational lag

operational lag

A political business cycle is the concept that - the economy usually expands during election years because there is extra spending. - the economy usually contracts during election years because there is intense scrutiny on spending. - politicians are more interested in re-election than in stabilizing the economy. - politicians are more interested in adding spending programs than in getting elected.

politicians are more interested in re-election than in stabilizing the economy.

Distracted by a war that is going badly, inflation reaches 8 percent before politicians take notice. - recognition lag - administrative lag - operational lag

recognition lag

Refinancing the public debt means - selling new bonds to retire maturing bonds. - swapping bonds for other assets. - paying off bonds at maturity. - buying new bonds to retire maturing bonds.

selling new bonds to retire maturing bonds.

The distinction between the absolute and relative sizes of the public debt is important because - the relative size doesn't tell you about an economy's capacity to repay the debt. - the absolute size doesn't tell you about an economy's capacity to repay the debt. - if the absolute size is larger than the relative size, then it is less of a problem. - the United States has the largest relative size public debt of any country.

the absolute size doesn't tell you about an economy's capacity to repay the debt.

If the annual interest payments on the debt sharply increased as a percentage of GDP, - GDP would fall. - the government would have to use tax revenues or go deeper into debt. - interest payments would represent a smaller portion of tax revenues. - there would be a smaller debt load.

the government would have to use tax revenues or go deeper into debt.

Consider the following statement: "Although fiscal policy clearly is useful in combating the extremes of severe recession and demand-pull inflation, it is impossible to use fiscal policy to fine-tune the economy to the full-employment, noninflationary level of real GDP and keep the economy there indefinitely." This statement recognizes that - there are lags in the use of discretionary fiscal policy. - the economy does not usually experience severe recession and demand-pull inflation. - tax cuts and spending changes are made in the political arena. - the impact of fiscal policy will affect the economy differently depending on the timing of the policy and the severity of the situation.

the impact of fiscal policy will affect the economy differently depending on the timing of the policy and the severity of the situation.

The crowding-out effect is - the increase in investment spending caused by the decrease in interest rates arising from an increase in government spending. - the increase in investment spending caused by the increase in interest rates arising from an increase in government spending. - the reduction in investment spending caused by the decrease in interest rates arising from an increase in government spending. - the reduction in investment spending caused by the increase in interest rates arising from an increase in government spending.

the reduction in investment spending caused by the increase in interest rates arising from an increase in government spending.