Chapter 13 Study Guide

When crowding out occurs, higher government spending results in higher interest rates, which in turn results in: a. higher inflation. b. less consumption and investment. c. a larger debt ceiling. d. more tax revenues.

b. less consumption and investment.

Most of the U.S. national debt is owed to ____________. Thus a rising national debt implies that there will be a future redistribution of income and wealth in favor of ____________. a. foreigners, foreigners. b. other U.S. citizens, bondholders c. foreigners, those needing government services d. other U.S. citizens, those needing government services.

b. other U.S. citizens, bondholders

The national debt is best described as the: a. amount by which this year's federal spending exceeds its taxes. b. value of all U. S. Treasury bonds owned by foreigners. c. sum of all federal budget deficits, past and present. d. percentage of GDP needed to finance a country's investment.

c. sum of all federal budget deficits, past and present.

Which of the following is false? a. The national debt's size decreased steadily after World War II until 1980 and then increased sharply each year. b. The national debt increases whenever the federal government has a surplus budget. c. The size of the national debt currently is about the same size as it was during World War II. d. All of the above are false. e. All of the above are true.

d. All of the above are false.

Which of the following statements about crowding out is true? a. It can completely offset the multiplier. b. It is caused by a budget deficit. c. It is not caused by a budget surplus. d. All of the above are true. e. None of the above.

d. All of the above are true.

Which of the following U.S. Treasury securities represents internal ownership of the national debt? a. Bonds owned by private individuals. b. Bonds owned by the Social Security Administration. c. Bonds owned by the banks and insurance companies. d. All of the above.

d. All of the above.

With regard to the national debt, to whom does the federal government owe money? a. Taxpayers b. Federal government workers c. The Treasurer of the United States d. Investors who buy U.S. Treasury bills, bonds, and notes

d. Investors who buy U.S. Treasury bills, bonds, and notes

Which of the following statements is true? a. The national debt as a percentage of GDP is greater today than during any other period in our nation's history. b. A sizeable external national debt will transfer purchasing power away from foreigners to domestic citizens. c. Keynesian theory assumes a total crowding-out effect associated with deficit spending. d. U. S. national debt has more than tripled since 1980.

d. U. S. national debt has more than tripled since 1980.

The crowding-out effect can be: a. zero. b. partial. c. complete. d. any of the above.

d. any of the above.

If Congress fails to pass a budget before the fiscal year starts, then federal agencies may continue to operate only if Congress has passed a: a. balanced budget amendment. b. deficit reduction plan. c. tax increase. d. continuing resolution.

d. continuing resolution.

In recent years, net interest payments as a percentage of GDP has been: a. increasing, but by such a small amount that it is not a matter of concern. b. falling continuosly. c. remained roughly constant. d. decreasing.

d. decreasing.

The U.S. Treasury financed federal budget deficits by selling: a. Treasury bonds. b. Treasury notes. c. Treasury bills. d. All of the above. e. None of the above.

d. All of the above.

The national debt is unlikely to cause national bankruptcy because the: a. national debt can be refinanced by issuing new bonds. b. interest on the public debt equals GDP. c. national debt cannot be shifted to future generations for repayment. d. federal government cannot repudiate the outstanding national debt.

a. national debt can be refinanced by issuing new bonds.

Since 1945, the net interest payment as a percentage of GDP has increased about: a. 50 percent. b. 100 percent. c. 125 percent. d. 200 percent.

b. 100 percent.

Between 1945 and 1980, the national debt as a percent of GDP: a. increased substantially. b. decreased substantially. c. remained about the same. d. increased slightly. e. decreased slightly.

b. decreased substantially.

If the national debt rises to the debt ceiling and there is currently a budget ______________, then Congress and the President must agree to ______________ the debt ceiling or else the federal government will have insufficient funds to pay its bills and will be forced to shut down. a. surplus, lower b. deficit, raise c. deficit, lower d. none of the above.

b. deficit, raise

Crowding out occurs when the federal government: a. raises taxes to finance a budget deficit. b. refinances maturing U. S. Treasury bonds. c. borrows by selling bonds to finance a deficit. d. uses a budget surplus to pay off part of the national debt.

c. borrows by selling bonds to finance a deficit.

The sum of past federal budget deficits is the: a. GDP debt. b. trade debt plus GDP. c. national debt. d. Congressional debt.

c. national debt.

Compared to Germany, France, and the United Kingdom, the national debt as a percentage of GDP in the United States is: a. substantially larger. b. the same. c. slightly larger. d. substantially smaller.

c. slightly larger.